Company car benefit-in-kind tax and Vehicle Excise Duty (VED) will be based on carbon dioxide (CO2) emission figures derived from the recently introduced Worldwide harmonised Light vehicles Test Procedure (WLTP) test procedure from April 2020.
Amid fears that could spell higher tax and VED rates, fleet industry leaders have called on HM Treasury to adopt a revenue neutral approach.
Company car benefit-in-kind tax and VED is currently based on CO2 emissions figures calculated using the New European Driving Cycle (NEDC) vehicle testing procedure.
However, from September 1, 2017 the NEDC regime has been replaced by the WLTP test procedure.
Long-time calls by the fleet industry to clarify when company car benefit-in-kind tax and Vehicle Excise Duty systems would switch to using data derived from the WLTP regime were clarified by Chancellor of the Exchequer Philip Hammond in the autumn Budget Statement. He said that NEDC figures would continue to be used until April 2020, when the new WLTP figures will be introduced.
The government said that following discussions with the car industry it considered that the timeline for introducing the new system would give manufacturers time to reflect the new values in all of their vehicles, and to explain to customers what the change would mean.
Industry experts have suggested that CO2 figures on a car-by-car basis could increase by about 20% with introduction of WLTP.
As a result, industry groups have called for a recalibration of both company car benefit-in-kind tax and VED emission bands to ensure revenue neutrality and avoid any tax increases, which could be a further nail in the coffin of company car demand with employees opting to take cash.
However, whether CO2 emission thresholds will be recalibrated to take account of any increase remains to be seen. Neither Mr Hammond nor the Budget papers gave any indication as to whether tax bands and CO2 levels would be realigned.
If tax thresholds remain unchanged – tax rates have already been announced to the end of the 2020/21 financial year – then the likelihood is that company car benefit-in-kind tax bills will rise significantly.
Figures published by automotive industry data provider JATO for a handful of models indicate the CO2 g/km difference between NEDC and WLTP derived figures.
For example the CO2 g/km figure on a BMW X5 3.0D Xdrive automatic jumps from 156g/km to 183g/km. If already published tax tables were used to calculate the percentage of P11D due in 2020/21 a driver’s tax bill would jump just one tax band from 36% to 37% assuming no company car tax diesel supplement was due.
However, for a Peugeot 308 1.2 PureTech 130 Active SW with emissions up from 106g/m to 121g/km the model would move from the 25% tax bracket in 2020/21 to the 29% tax band. Meanwhile, a Volvo XC60 2.0 D4R Design Geartronic 4WD with emissions up from 133g/m to 148g/km would switch from the 31% tax bracket in 2020/21 to the 34% threshold.
Paul Hollick, chairman of fleet industry training organisation ICFM, said: “If the introduction of a company car benefit-in-kind tax system linked to new WLTP emissions data does not result in a wholesale restructure of band thresholds tax bills will increase significantly. The result will be that employers and employees abandon company cars as a benefit that is too expensive. Instead employers and employees will turn to cash and PCH alternatives.”
Gerry Keaney, chairman of the British Vehicle Rental and Leasing Association, welcomed final confirmation that a new WLTP-based CO2 company car tax regime would be introduced in 2020.
However, he added: “Although we had pushed for the vehicle leasing industry to be given an extra year to prepare for these changes, we look forward to working with the government in developing a tax revenue neutral approach.”