Why the ‘Mini Budget’ is good news for company car drivers

The UK is in the middle of a once-in-a-generation cost-of-living crisis, with rising energy and material prices leading to spiralling inflation rates. To stimulate economic growth, new Chancellor Kwasi Kwarteng has revealed a ‘Mini Budget’ with financial support for households and businesses. Those changes also make it cheaper to opt into a company car.

The biggest change for most drivers is a reduction in the basic rate of income tax (applied to annual income of between £12,571 to £50,270) from 20% to 19% from April 2023. Introduced 12 months earlier than planned, HM Treasury says this will reduce tax bills by an average £170 per person, for 31 million people during the next financial year.

That change will also offer a small reduction company car drivers’ Benefit-in-Kind bills. Payments are based on the ‘taxable value’ of the car – a percentage of the list price, weighted based on its CO2 emissions – and the driver’s income tax band.

By reducing the basic rate of income tax to 19%, affected drivers will pay 5% less for the benefit of a company car, including salary sacrifice schemes.

Employers who provide company cars are liable for Class 1A National Insurance Contributions (NICs). This uses the same CO2-weighted taxable value as Benefit-in-Kind for drivers, but it’s paid at a flat rate of 15.05%.

That rate had increased by 1.25% points in April 2022 with the introduction of the Health and Social Care Levy, which was intended to fund investment in the NHS. The levy was due to become a tax in its own right from April 2023 but will now be scrapped altogether from 6 November 2022 putting NIC rates back down to 13.8% five months early.

In doing so, HM Treasury is reducing employers’ company car NICs by around 3.5% this tax year.

Choosing an electric vehicle is still the most effective way to reduce both Benefit-in-Kind and Class 1A NICs, even with a higher list price for the vehicles. This offers a 90% saving for employee and employer, as shown in the following table: