Taxable benefits and regime for measuring CO2 emissions
Published 11 March 2020
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Who is likely to be affected
This measure affects individuals and employers who provide company cars for employees that are made available for private use.
General description of the measure
As announced at autumn Budget 2017, the measure confirms that the carbon dioxide (CO2) emissions figure for the purposes of the company car tax regime and related charges will be based on the Worldwide harmonised Light Vehicle Test Procedure (WLTP) for all new cars registered from 6 April 2020.
For cars measured under WLTP, most appropriate percentages are reduced by 2 percentage points in 2020 to 2021 compared to the current percentages for cars with emissions measured under the New European Driving Cycle (NEDC) to help support the introduction of the WLTP – for example, emissions generating a percentage of 8% would have a reduced percentage of 6%. The percentages will then be increased by one percentage point for each of the tax years 2021 to 2022 (for example from 6% to 7%) and 2022 to 2023 (for example from 7% to 8%). In the tax year 2022 to 2023, the increase will bring the percentages back to their published rates in existing legislation.
The measure includes changes to the appropriate percentage figures for all cars classified as being ZEVs under both the NEDC and WLTP test procedures. The appropriate percentage will be reduced to 0% for the tax year 2020 to 2021 and will be increased by one percentage point for the tax years 2021 to 2022 (to 1%) and 2022 to 2023 (to 2%). In the tax year 2022 to 2023, the increase will bring the appropriate percentage back to their published rates in existing legislation which will be sustained throughout the tax years 2023 to 2024 and 2024 to 2025.
For cars registered between 1 October 1999 and 5 April 2020 inclusive, the measure clarifies that the CO2 emissions figures for company car tax and related charges will continue to be based under the New European Driving Cycle (NEDC) procedure.
Policy objective
As the WLTP is more representative of real-world driving conditions, this measure ensures that company car tax and related charges are based on a more robust regime for measuring CO2 emissions.
The introduction of the WLTP allows motorists to make more informed purchasing decisions when considering the CO2 impact of their new car. The WLTP results in different CO2 values in comparison to the NEDC procedure, and the temporary reduction to the appropriate percentages for cars measured under the WLTP procedure support its introduction. The changes to appropriate percentage figures for all ZEVs support the government’s climate change objectives by encouraging take-up of ZEVs.
Background to the measure
The company car tax system and related charges are currently based on a vehicle’s CO2 emission figure calculated under the NEDC test procedure.
WLTP testing standards were introduced for new registrations in September 2017. From this date, EU legislation required car manufacturers to report CO2 emissions figures from both NEDC and WLTP test procedures. The impact of adopting the WLTP for all new company cars registered form 6 April 2020 is included by the OBR in their forecast at Budget 2018.
At autumn Budget 2017, the government announced that, for the purposes of calculating company car tax and related charges, the CO2 emission figure produced under WLTP would be used for new cars registered from April 2020. Legislation was also introduced in Finance Bill 2017 to 2018 to clarify that NEDC figures should be used for company car tax purposes, where more than one emissions figure is recorded, until April 2020.
At Budget 2018, the government announced a review of the impacts of WLTP on vehicle taxes. A summary of the responses and the government’s policy decisions was published on 9 July 2019.
Detailed proposal
Operative date
This measure will have effect for new company cars first registered from 6 April 2020. For cars registered before 6 April 2020, the company car tax and related charges will continue to be based on the NEDC emission figures.
Current law
References to specifying a CO2 emission figure for a car for a year for the purposes of determining the appropriate percentage are in sections 133, 136, 137, 139, 140 and 171 of the Income Tax (Earnings and Pensions) Act 2003.
The current legislation specifies that where more than one emissions figure is recorded on an EC certificate of conformity or a UK approval certificate, the WLTP value should be ignored. Section 139 of Income Tax (Earnings and Pensions) Act 2003, as substituted by section 2 of the Finance (No 2 Act) 2017 with effect from 2020 to 2021, provides for a range of appropriate percentages applying to cars with different emissions figures.
Proposed revisions
Finance Bill 2020 introduces primary legislation to clarify that all new cars provided to employees and available for private use which are first registered from 6 April 2020 will be taxed according to the CO2 emissions figure measured under the WLTP procedure.
The legislation introduces modified tables of WLTP appropriate percentages to be used for the purposes of calculating company car tax and related charges for cars first registered on or after 6 April 2020 for the tax years 2020 to 2021 and 2021 to 2022.
The legislation also introduces changes to the appropriate percentage for zero emission cars that will apply for the tax years 2020 to 2021 and 2021 to 2022.
The amendments also clarify that, for the purposes of company car tax and related charges, cars first registered between 1 October 1999 and 5 April 2020 inclusive will continue to be taxed on the basis of the CO2 emissions figure measured under the NEDC procedure.
The legislation remains unchanged for cars first registered before 1 October 1999.
Summary of impacts
Exchequer impact
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| nil | -50 | -50 | negligible | nil | nil |
These figures are set out in Table 2.1 of Budget 2020 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
There are currently around one million company car drivers. This measure will impact employees provided with a car made available for private use by their employer. Those individuals who wish to report the benefit through their personal tax account will need to familiarise themselves with the changes to ensure that the correct level of CO2 emissions is reported. They will need to be aware that for cars first registered on or after 6 April 2020, CO2 emissions figures as determined by the new WLTP testing regime will apply. Individuals will benefit from the reduction in all appropriate percentages in 2020 to 2021 and by one percentage point in 2021 to 2022.
Drivers of zero emission vehicles (ZEVs) under both the NEDC and WLTP procedure will benefit from the zero percent for the tax year 2020 to 2021. It is not expected to impact on family formation, stability or breakdown.
Customer experience is expected to stay broadly the same for these individuals as this is only a percentage change based on WLTP. To support these individuals, clear guidance will be published in advance of the new tax year.
Equalities impacts
It is not anticipated that there will be impacts on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on the estimated 110,000 businesses who provide company cars from 6 April 2020. Businesses will need to ensure the CO2 emissions figure as modified under WLTP is used for the purposes of calculating company car tax and related charges. One-off costs will include familiarisation with this change.
There are not expected to be any ongoing costs.
Customer experience is expected to stay broadly the same because the method of reporting company car tax remains the same. The new appropriate percentages will be published in advance to support businesses to familiarise themselves with changes.
This measure is not expected to impact civil society organisations.
Operational impact (£m) (HMRC or other)
This measure will not have any operational impact for HMRC who collect company car tax. However, for cars registered after 6 April 2020, HMRC will use CO2 figures compatible with the new WLTP system in the collection of company car tax and related charges.
For cars registered before 6 April 2020, HMRC will continue to use the current NEDC test in the collection of company car tax and related charges.
Other impacts
Wider environment impact: This measure supports the government’s climate change objectives by encouraging the take up of lower emission vehicles which reduces transport carbon dioxide emissions and improves air quality.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Employment Income Policy Team by email at: employmentincome.policyteam@hmrc.gov.uk