Behind the headlines: upcoming company car changes

It’s all change for company cars come 6th April 2020. For company cars registered from this date, employers will be using new CO2 emission values as a result of the move to the harmonised worldwide harmonised light vehicle test procedure (WLTP) – a new CO2 emissions testing regime developed after the VW scandal.  This also replaces the 1997 New European Driving Cycle (NEDC) test format, and follows the introduction of new rules for ultra-low emission vehicles (ULEVs).

My previous blog on ‘the road to company car tax changes’ covers the new system’s impact on Vehicle Excise Duty, Company Car Tax and important points to remember for P11D purposes. This week’s blog builds on this and takes a look behind the headlines at the impact on ultra-low emissions vehicles.

The background

In the 2017 autumn Budget, the Chancellor announced changes to the taxation of ultra-low emission vehicles which are provided as company cars. These changes were included in Finance Act 2017 to take effect for tax years 2020/21 and for subsequent tax years. Section 139 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) provides the basis of the formula for calculating the percentage related to the CO2 emissions for cars emitting less than 75g/km of CO2.

The impact

From 6th April 2020 there will be different CO2 emissions based on the ‘electric range’ of hybrid cars. The electric range means the maximum distance in miles that the car can be driven in electric mode on one battery charge. The five new bands for hybrid cars emitting up to 50g/km of CO2 are based on kilometre equivalents that are specified in either:

  • An EC certificate of conformity
  • An EC type-approval certificate, or
  • A UK approval certificate

It is one of these three documents that allows a car to be registered.

Fully electric cars will have a zero car benefit charge for 2020/2021.

How it’ll work with WLTP

At the same time, the move to the WLTP was announced. As this was not formally approved immediately, the legislation is included in Finance Act 2019 which is currently processing through Parliament. This won’t affect the timeline and changes will take effect for tax year 2020/21 and subsequent tax years.

Those with cars which emit over 50g/km of CO2 and have been registered before 6th April 2020, will see a difference in their emissions calculation, compared to those with cars emitting the same which are registered from 6th April 2020. This is because cars registered before 6th April 2020 will continue to hold their CO2 figure under the old NEDC regime for the life of the car.

In the WLTP consultation, the government estimated that 50% of company car users would see an increase in their company car tax benefit of between 10% and 20%. To mitigate this, for the next two tax years percentages will be reduced as cars will move into a different emissions’ bracket than previously. As mentioned in my previous blog, cars with accessories such as air conditioning and sunroofs will move into a higher emissions bracket in the new regime, as it makes the car less fuel-efficient.

 What this means for the P11D process

Ahead of the 2020/2021 P11D submission deadline, HMRC will make changes to section 5A of P11D working sheet 2 and section 3A of working sheet 2B.

As well as indicating the zero emissions’ mileage for hybrid cars in meeting 1–50g/km, the fuel type when the car is not in electric mode will also dictate the appropriate percentage. Fuel types A (petrol) and F (RED2 diesel so-called ‘clean diesel’) will attract a percentage that is four percentage points lower than cars using old-style diesel. A car that is RDE2 compliant will be shown as such on one of the three conformity certificates as mentioned above.

As a reminder, here are the relevant percentage points:

Actual C02 emissions Electric range (miles) Reg’d pre 6.4.20

% Petrol & RDE2 diesel

Reg’d pre 6.4.20

% diesel

Reg’d from 6.4.20

% Petrol & RDE2 diesel

Reg’d from 6.4.20

diesel

Actual C02 emissions Reg’d pre 6.4.20

% Petrol &

RDE2 diesel

Reg’d pre

6.4.20

% diesel

Reg’d from 6.4.20

% Petrol & RDE2 diesel

Reg’d from 6.4.20

diesel

0 0 N/A 0 4 100-104 25 29 23 27
1-50 >130 2 6 0 4 105-109 26 30 24 28
1-50 70-129 5 9 3 7 110-114 27 31 25 29
1-50 40-69 8 12 6 10 115-119 28 32 26 30
1-50 30-39 12 16 10 14 120 -124 29 33 27 31
1-50 <30 14 18 12 16 125-129 30 34 28 32
51-54 15 19 13 17 130-134 31 35 29 33
55-59 16 20 14 18 135-139 32 36 30 34
60-64 17 21 15 19 140-144 33 37 31 35
65-69 18 22 16 20 145-149 34 37 32 36
70-74 19 23 17 21 150-154 35 37 33 37
75-79 20 24 18 22 155-159 36 37 34 37
80-84 21 25 19 23 160 & above 37 37 35 37
85-89 22 26 20 24 160-164 36 37
90-94 23 27 21 25 165-169 37 37
95-99 24 28 22 26 170 & above 37 37

But what about payrolling company cars?

From April 2020, employers who have made the decision to payroll their company cars will need to include the zero emissions’ mileage range for hybrid cars emitting between 1-50g/km CO2, in the full payment submission (FPS). This should be calculated from the vehicle’s registration date.