Fleets remain in the dark on any changes to the existing company car benefit-in-kind tax regime from April 2020 with the Government ignoring calls for rates up to the end of 2024/25 to be published in its recent Spring Statement.
The fleet industry had hoped that Chancellor of the Exchequer Philip Hammond would at the very least indicate the “direction of travel” on any changes – as well as to the to Vehicle Excise Duty for cars – in the wake of last year’s introduction of the Worldwide harmonised Light vehicles Test Procedure (WLTP).
However, the fleet industry was left disappointed as the Chancellor merely stated that “in the coming months” the Government would publish its response to its recent call for evidence in relation to its review into the impact of WLTP on company car tax benefit-in-kind tax and Vehicle Excise Duty for cars.
The lack of clarity means that fleets and company car drivers continue to have no idea as to what company car benefit-in-kind tax rates will be from 2021/22 as rates have only been published up to and including 2020/21, or if those already announced rates for 2020/21 will change.
Meanwhile, April 6, the start of the 2019/20 tax year, signals a further rise in company car benefit-in-kind tax bills. For example, the average emissions of a British Vehicle Rental and Leasing Association-member provided new company car is 118g/km of CO2, according to latest figures. That means a rise from 24% of the P11D value in 2018/19 to 27% in 2019/20 for a petrol-engined model.
With its review into the impact of the WLTP emissions and fuel economy testing regime on company car benefit-in-kind taxation and Vehicle Excise Duty, HM Treasury says it wants to ensure the Government “strikes the balance between protecting consumers and meeting our climate change commitments”.
The review document said that initial evidence provided by motor manufacturers suggested that more than 50% of cars would see an increase in carbon dioxide (CO2) emissions from the old New European Driving Cycle (NEDC) testing procedure to WLTP of between 10% and 20% thus resulting in an increased tax liability.
Meanwhile, there was also no word from the Chancellor on the future shape of Vehicle Excise Duty for light commercial vehicles. The move comes in the light of all new vans from September 2019 having to be WLTP type approved.
The Government intends to replace the current flat rate (2019/20: £260 a year/£140 for early Euro 4 and Euro 5 compliant vans/60% of the main charge for zero emission vans) with, from April 2021, a two-category approach, graduated by carbon dioxide (CO2) emissions when a van is first registered, followed by a standard rate for subsequent years.
Mr Hammond has previously said that he hoped the changes to Vehicle Excise Duty would “help the great British white van driver go green”.
The Government has previously indicated that:
- The new system would take account of van weight with a two-category approach each sub-divided into CO2 bands
- Ongoing incentives would be provided in the first year and beyond for new zero emission, ultra-low emission and other alternatively fuelled vans.
The exact weight categories, CO2 bandings and new Vehicle Excise Duty rates will be announced by the Government prior to April 2021 implementation.
However, the Government has already indicated in its two-category approach that high emission vans will be heavily penalised compared with today’s Vehicle Excise Duty rates. For example, small/medium sized vans with emissions of more than 225g/km could face a first year Vehicle Excise Duty charge of £2,000 and those with CO2 emissions of 191-225g/km a £1,500 charge. Large vans with emissions above 255g/km could face a charge of £500 and those with CO2 emissions of 221-255g/km a £390 charge. In all cases a standard flat Vehicle Excise Duty rate is proposed for vans in the second year of operation and beyond.
Meanwhile, zero CO2 emission vans of all weight categories are likely to be £0 Vehicle Excise Duty rated, according to Government indications, and those with CO2 emissions of 1-50g/km could face a £10 first year rate, but a £125 standard rate compared with a £265 standard rate for higher emitting models.
But, there are concerns that some businesses could be penalised even though the fleet industry generally believes that the tax regime is a “powerful way of incentivising businesses and individuals to choose low emission vehicles”.
For example, there are fears that a graduated Vehicle Excise Duty regime for vans penalises fleets for using what is an essential business tool with some jobs requiring larger vans with larger engines and consequently higher CO2 emissions.
It has also been suggested that some businesses could, depending on operational requirements and Vehicle Excise Duty rates when published, “play the system” and replace one large van with two smaller vans or vice-versa.
For example, using vans with a smaller engine and load capacity to save on Vehicle Excise Duty in place of a larger van could result, it is claimed, in overloading or additional journeys being made.