Page 15 - Budget Newsletter 2021

Employees

Company Cars

The company car benefit scales underwent radical changes at the start of 2020/21, reflecting the replacement of the
old and discredited New European Driving Cycle (NEDC) emissions test with the new Worldwide Harmonised Light
Vehicle Test Procedure (WLTP) ‘real world’ test. The result was two separate scales for cars depending upon whether
they were registered before or on/after 6 April 2020. In 2022/23, that distinction falls away and the scale percentages
for WLTP generally rise by 1% to match the frozen NEDC rates. The 2022/23 rates will then apply for the following two
tax years.

The scale charge for zero emission cars (e.g. electric-only) will double – but only to 2% – for 2022/23 to 2024/25. Zero
and low emission (not more than 75g/km CO2) cars remain attractive options under salary sacrifice arrangements as
they are not subject to the OpRA rules (which tax the greater of the salary foregone and the car’s scale value).

At the other end of the emission scale, the maximum charge for 2022/23 will stay at 37% and will apply for petrol
engine and RDE2 diesel engine cars with emissions of 160g/km. The corresponding limit for older non-RDE2 diesel
engine cars is 140g/km respectively.

PLANNING POINT

If you are changing your car soon, think ahead to what it will cost you in tax terms. It may make sense to accept
cash instead of a new car, switch to a hybrid vehicle or join the growing band of Tesla drivers.

Pensions

The pensions landscape has altered dramatically in recent years and continues to change. As a reminder:

• For 2020/21 there was a £90,000 increase to both of the annual allowance tapering trigger points, taking them to
£200,000 (threshold income) and £240,000 (adjusted income). However, there was a sting in the tail for people
with very high incomes: the minimum tapered annual allowance dropped from £10,000 to £4,000 (at an adjusted
income of £312,000 or more).

• Automatic enrolment for employees in a workplace pension arrangement is now fully in force, with new
employees automatically enrolled. A second increase in the minimum contribution rates took place from April
2019, raising the total (employer and employee) contributions from 5% of “band earnings” (£6,448 - £50,270 in
2022/23) to 8%. No further increases are scheduled at present. Nevertheless, pension experts generally agree that
if your total pension contribution rate is 8% you are unlikely to achieve an adequate retirement income.

• The new state pension started in April 2016, replacing both the basic state pension and the second state pension
(S2P). In the long term the reform will create more losers than winners as the earnings-related element was
removed.

• State pension age (SPA) increases have stopped for the time being at age 66. An increase to 67 is due between
April 2026 and March 2028. The rise to 68 is scheduled between April 2037 and March 2039, although the
necessary legislation has been deferred and the dates could change due to a slowing rate of life expectancy
increases. By 2050 – so if you are under 40 now – you could be facing a SPA of 69.

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