Bevis Wright Accountant

From 6th April 2020, there are some big changes in how company vehicles will be taxed, both for employees and employers.

WLTP testing

When a car is purchased or leased, an emissions figure will be provided.  Up to now, this figure has been calculated using something called the New European Driving Cycle (NEDC).  However, this is based on theoretical driving and has become outdated, as well as the subject of abuse – for example, the 2015 Dieselgate scandal.  As a result of this, all cars from 6th April 2020 will display an emissions figure based on the Worldwide Harmonised Light Vehicle Test Procedure (WLTP).  

This is a test based on real driving data, and better matches a vehicles on-road performance.  However, this does also mean that nearly all vehicles will see a large increase in the stated emissions figure.  The government estimates that reported CO2 values may be on average about 20 – 25% higher under the WLTP testing standards compared to the current test.

WLTP car benefit reduction

As we know, car benefit for employees is calculated as the p11d value (List price) x the relevant car benefit rate – a rate which is based on which emissions band a car falls into.  With this large increase in emissions, some new cars could move 4 or 5 bands higher than their 2019 equivalent.

In order to prevent this imbalance, the government has announced that for all vehicles registered after 6th April 2020, there will be a 2% car benefit reduction in 2020/21, increasing by 1% the following year, and returning to the standard rates in 2022/23.  

It should be made clear that the emissions test will only be on cars registered after 6 April, the emissions stated for any previously registered vehicles will not change, hence vehicles registered prior to 6th April 2020 will not get the 2% reduction.

Zero emission cars

The government are keen to promote the use of all zero emissions vehicles, including Electric vehicles (EV), Extended range EV’s (EREV), Battery electric vehicles (BEV) and Fuel cell electric vehicles (FCEV).

To encourage more companies and employees to take these as company vehicles, these vehicles will have a 0% company car tax rate in 2020/21 (i.e. no company car tax), followed by 1% in 2021/22 and 2% the year after.

This lower/ zero rate is only available to zero emissions vehicles, and not Hybrid cars.  However, unlike the WLTP reduction mentioned above this reduction will apply to zero emissions vehicles registered prior to 6th April 20.

Hybrid cars

Rules on hybrid vehicles, including Full hybrid (FHEV), Mild hybrid (MHEV) or Plug-in hybrids (PHEV), are also changing. Up until now, most hybrids have fallen into one company car tax bracket, the 1 – 50 g/km CO2 emissions.  However, this has now been split down further, based on the electric range of a hybrid vehicle.  

All hybrid cars should see a reduction overall, from the current 16% band. The tables below set out the rates (varying from 14% for a vehicle that has an electric range of fewer than 30 miles, down to 0% for a car with electric range greater than 130 miles – although none of these vehicles currently exist!)

Diesel car changes

As well as the change to measuring emissions based on the WLTP rules, emissions limits are also being tightened.  From January 2022, new cars will have to pass a stricter test, known as RDE2, to comply with the new Euro 6d standard (not to be confused with the existing RDE test and Euro 6 standard).  However, many car manufacturers have already started selling vehicles that are compliant to this standard, in part due to a key change in the company car tax rules.  

Any vehicles which are compliant with the Euro 6d standard are not subject to the 4% diesel surcharge and would be taxed at the same rate as an equivalent petrol vehicle.  This is good news for persons securing new so called “clean diesel” vehicles as this exemption could save £1000’s compared to equivalent non-compliant diesel vehicles.

It is worthwhile checking whether you could apply for this exemption on an existing car (as the surcharge may have been automatically applied if a payroll provider marked your vehicle as “Diesel” rather than “Euro 6d compliant”). This can be done here. NOTE: some vehicles may show the emissions standard as “EURO 6d-TEMP” or “Euro 6.2” – these are vehicles that technically do comply with the RDE2 test, however as the cars will not be certified under Euro 6d, they'll still attract the charges. For a full list of Euro 6d compliant cars to consider, please click here.

Van Benefit

Changes in van benefit are relatively minor.  The van benefit charge will increase to £3,490. The main other change relates to zero emission vans. From April 2021, zero emissions vans will have a nil rate of tax. 

Fuel Benefit

Car fuel benefit for 2020/21 will be the relevant percentage of £24,500.  Van fuel benefit will be £666.

Corporation tax & cars

As well as changes to income tax through the above benefit alterations, there are also some key changes to corporation tax.  The government has announced an extension to 100% first year allowances for zero-emission cars by four years from April 2021. From April 2021, CO2 emission thresholds will also be reduced from 50g/km to 0g/km for the purpose of the first year allowances for low CO2 emission cars and from 110g/km to 50g/km for the purpose of Writing down allowances for business cars.

Car benefit rates 2020/2021

    Euro 6 diesel cars All other cars (Petrol, Hybrid, Electric, Euro 6d diesel)
Registered   Pre 06/04/20 Post 05/04/20 Pre 06/04/20 Post 05/04/20
CO2 emissions (g/km)  Electric range % of list price taxed  % of list price taxed  % of list price taxed  % of list price taxed 
0       0 0
1 - 50 130+     2 0
1 - 50 70 - 129     5 3
1 - 50 40 - 69     8 6
1 - 50 30 - 39     12 10
1 - 50 < 30     14 12
51 - 54   19 17 15 13
55 - 59   20 18 16 14
60 - 64   21 19 17 15
65 - 69   22 20 18 16
70 - 74   23 21 19 17
75 - 79   24 22 20 18
80 - 84   25 23 21 19
85 - 89   26 24 22 20
90 - 94   27 25 23 21
95 - 99   28 26 24 22
100 - 104   29 27 25 23
105 - 109   30 28 26 24
110 - 114   31 29 27 25
115 - 119   32 30 28 26
120 - 124   33 31 29 27
125 - 129   34 32 30 28
130 - 134   35 33 31 29
135 - 139   36 34 32 30
140 - 144   37 35 33 31
145 - 149   37 36 34 32
150 - 154   37 37 35 33
155 - 159   37 37 36 34
160 - 164   37 37 37 35
165 - 169   37 37 37 36
170 +   37 37 37 37