Personal Tax: retention of the 3 percentage point supplement for diesel cars
Published 9 December 2015
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This publication is available at https://www.gov.uk/government/publications/personal-tax-retention-of-the-3-percentage-point-supplement-for-diesel-cars/personal-tax-retention-of-the-3-percentage-point-supplement-for-diesel-cars
Who is likely to be affected
Businesses and employers who provide diesel-engined company cars that are made available for employees’ private use and those employees.
General description of the measure
The effect of this measure is to retain the supplement for diesel company cars which was due to be abolished with effect from 6 April 2016. This means the appropriate percentage for a diesel company car will continue to be 3 percentage points higher than the petrol car equivalent up to a maximum of 37%.
Policy objective
The government is retaining the 3 percentage point rate differential between diesel and petrol cars for longer than previously planned.
The government announced at Autumn Statement that the supplement is being retained until 2021, when new EU-wide testing procedures will ensure future diesel cars meet expected air quality standards even under strict ‘real world’ driving conditions.
Retaining higher rates for diesel cars will support the UK’s transition to cleaner zero and ultra-low-emission cars.
This will help reduce NO2 emissions and improve air quality in towns and cities.
Background to the measure
Abolition of the 3 percentage point diesel supplement was announced at Budget 2012 and 2013, and legislated for in Finance Act 2014. It was due to take effect from 6 April 2016. Retention of the supplement until 2021 was announced at Autumn Statement 2015.
Detailed proposal
Operative date
The legislation which introduced the repeal of the diesel supplement will be amended in Finance Bill 2016 with the effect that the diesel supplement will continue to apply from 6 April 2016.
Current law
Sections 121 to 148 of the Income Tax (Earnings & Pensions) Act 2003 (ITEPA) provide for calculating the cash equivalent of the benefit of a company car which is made available for private use. In broad terms, this depends on the list price of the car plus taxable accessories, multiplied by the level of CO2 emissions the car produces, which is expressed as the appropriate percentage.
Section 141 ITEPA sets out the basis for calculating the appropriate percentage for diesel cars registered on or after 1 January 1998 by adding a further 3 percentage point suppplement. Section 141 was prospectively repealed from 6 April 2016 by section 24(11) of the Finance Act 2014.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to retain section 141 and therefore the diesel supplement with effect from 6 April 2016.
Section 24 of the Finance Act 2014 will be amended to retain all references to section 141 ITEPA, so the 3 percentage point supplement to the appropriate percentage for diesel cars will remain for 2016 to 2017 and subsequent years.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|---|
| - | +280 | +275 | +275 | +265 | +265 |
These figures are set out in Table 3.1 of Autumn Statement 2015 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2015.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Increases in the fuel benefit charge are assumed to trigger reductions in take-up. Exchequer yield is adjusted to take into account additional employees leaving the fuel benefit charge in response to this measure.
Impact on individuals, households and families
This measure will impact individuals who drive a diesel company car.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The measure will impact those sharing protected characteristics which are representative of company car drivers, and these are more likely to be male than female and in working age groups.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses and civil society organisations.
100,000 employers provide diesel company cars to employees. There will be a negligible one-off cost to those employers who have already entered 2016 to 2017 appropriate percentages on their data systems as they will have to amend these.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
Routine IT and guidance changes required for HMRC.
Other impacts
Carbon emissions: by strengthening the incentive to purchase zero-emission cars and ultra low emission vehicles over diesel fuelled cars this measure is expected to contribute to the UK’s carbon emissions targets and other air quality objectives.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from P11D forms.
Further advice
If you have any questions about this change, please contact the Employment Income Team on Telephone:03000 521589 or email: employmentincome.policy@hmrc.gsi.gov.uk.