New emissions rules mean further changes to company car tax from 2020

In the Autumn Budget 2017 the government announced that cars registered from April 2020 will be taxed based on the new ‘Worldwide Harmonised Light Vehicle Test Procedure’ (WLTP) emissions regulations, instead of the current New European Driving Cycle (NEDC) basis.

It is suggested that, on average, WLTP results in reported CO2 values about 20-25% higher than NEDC and recognising that the change would have greatest impact on company car tax, the government has considered amending company car tax rules to reduce the impact of the forthcoming transition to WLTP.

Following the recent conclusion to its review and a consultation process with key players in the automotive industry, the government has now published its plans – the key highlights of which are:

  • For cars registered from 6 April 2020 most CO2 % ratings will be reduced by 2% in 2020/21, before returning to the originally planned rates over the following two years – increasing by 1% 2021/22 and 1% in 2022/23.
  • Cars registered before 6 April 2020 will continue to be taxed using the older NECD system and will have the previously published 2020/21 CO2 % ratings frozen for both 2021/22 and 2022/23.
  • All zero emission (electric) company cars will benefit from 0% company car tax in 2020/21, increasing to 1% in 2021/22 and then reverting to the originally planned 2% rate in 2022/23 – this applies to cars registered before or after 6 April 2020.
  • In response to criticisms of recent slowness in confirming future rates, the government will commit to confirming company car tax rates in advance. This will be welcome news and will provide more certainty for fleet decision makers and company car drivers.

The published rates for company car taxation, for cars registered both before and after 6 April 2020 can be found in tables Appendices A and Appendices B below respectively. Click to expand.

Some commentators have expressed an element of relief that the government has taken at least some action to reduce company car drivers’ exposure to increased benefits in kind tax, as a result of the change in CO2 basis to WLTP.  However,  for many these actions do not go far enough.

For employees taking delivery of a company car from April 2020, the 2% reduction in rates for 2020/21 (and 1% reduction for 2021/22 before equalising out in 2022/23) will not compensate enough for higher CO2 emissions as a result of the change to WLTP testing.

The government continues to give a greater tax incentive to the take-up of zero emission (electric) and Ultra Low Emission (CO2 rating < 75g/km) vehicles, so our advice to employers is to now look seriously at these options for any forthcoming company car renewals. Not only will the company car benefit be much lower than a more standard petrol or diesel car but there are also associated tax breaks available for workplace car charging ports, 100% Capital Allowances etc.

If you have any questions about company car taxation or your options for providing benefits to your staff, please get in touch with Richard Whitelock at rwhitelock@garbutt-elliott.co.uk or call 01904 464151.