Tax & Estate Planning

Changes to company car benefits from 2020/21

By July 19, 2019 No Comments

The Treasury has published a paper setting out changes to company car tax from April 2020, in response to an earlier consultation on Worldwide harmonised Light vehicles Test Procedure (WLTP).

As any (surviving) VW executive will tell you, the measurement of emissions from cars is no easy matter. In the Autumn 2017 Budget the Government addressed the subject by announcing it would move to WLTP data for Vehicle Excise Duty and company car tax from April 2020.

In December 2018, the Treasury launched a review of WLTP and vehicle taxes. This was primarily prompted by the fact that the WLTP measure for CO2 emissions was producing significantly higher figures than both the old (and largely discredited) New European Driving Cycle (NEDC) and the ‘simulated’ NEDC figures derived from WLTP results. To quote the Treasury paper, “Initial evidence provided by manufacturers suggests that over 50% of cars will see an increase from NEDC to WLTP of between 10% and 20%”.

A 2017 European Commission table in the Treasury paper suggests this to be a potential underestimate, with the average increase for petrol cars being 22% and 20% for diesel. The responses to the Treasury paper noted increases “ranging from 7% to 40%” with “on average…values about 20-25% higher than NEDC”. The most notable increases were on smaller engine cars.

The sharp increases have prompted the Government to make some changes to the company car tax scales from 2020/21, currently to be found in the Finance (No. 2) Act 2017. The amendments will be legislated for in the next Finance Bill and can be summarised as follows:

  • For cars registered on or after 6 April 2020, i.e. those for which the WLTP CO2 figure will be used, the appropriate percentage rate in 2020/21 will generally be reduced by 2% from what was originally legislated for. The maximum rate of 37% will apply to cars with emissions of 170g/km and over.
  • The reduction will be cut to 1% in 2021/22 and eliminated in the following tax year.
  • For zero emission vehicles the rates will be 0% in 2020/21, 1% in 2021/22 and 2% in 2022/23, regardless of registration date.
  • For cars registered before 6 April 2020 which use the NEDC yardstick, the percentages scales will be unchanged from those in Finance (No. 2) Act 2017 and will be frozen at the 2020/21 levels in both 2021/22 and 2022/23.

The Treasury paper sets out the resultant scales up to 2022/23 in an appendix at the end of its summary of responses document.

CO2 g/km Electric range (miles) % of price subject to tax*
NEDC NEDC – Registered pre 6/4/2020 WLTP – Registered 6/4/2020 onwards
2019/20 2020/21 2020/21
0 N/A 16 0 0
1-50 >130 16 2 0
1-50 70-129 16 5 3
1-50 40-69 16 8 6
1-50 30-39 16 12 10
1-50 <30 16 14 12
51-54 19 15 13
55-59 19 16 14
60-64 19 17 15
65-69 19 18 16
70-74 19 19 17
75 19 20 18
76-79 22 20 18
80-84 22 21 19
85-89 22 22 20
90-94 22 23 21
95–99 23 24 22
100–4 24 25 23
105–9 25 26 24
110–4 26 27 25
115-9 27 28 26
120–4 28 29 27
125–9 29 30 28
130-4 30 31 29
135–9 31 32 30
140–4 32 33 31
140-4 33 34 32
150–4 34 35 33
155–9 35 36 34
160–4 36 37 35
165–9 37 37 36
170 & over 37

* Add 4% for diesels not meeting RDE2 standard, subject to a maximum of 37%

The 20% (ish) average increase in CO2 emissions associated with WLTP means that the appropriate percentage rates will still generally be rising by 3%-4% in 2020/21 on like-for-like cars over the previous tax year. For example, a car with an NEDC emission of 110 g/km (26% benefit in 2019/20 and 27% in 2020/21) could have a WLTP emission of 132 g/km, implying a benefit of 29% in 2020/21 if registered after 5 April 2020.

Finally, HMRC produce a useful calculator for you to estimate the amount of tax you will pay on your company car.

http://cccfcalculator.hmrc.gov.uk/CCF0.aspx