Income Tax changes to benefit charges for vans and the fuel benefit charge for cars and vans
Published 3 March 2021
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Who is likely to be affected
Employers and employees, where employers provide employees with company vans available for private use, or provide fuel for private mileage in company cars and vans.
General description of the measure
This measure increases the van benefit charge and the car and van fuel benefit charges by the Consumer Price Index from 6 April 2021. The flat-rate van benefit charge will increase to £3,500; the multiplier for the car fuel benefit will increase to £24,600; and the flat-rate van fuel benefit charge will increase to £669.
Policy objective
The measure ensures the tax system continues to support the sustainability of the public finances. Employers will be able to make the necessary changes to payroll systems and tax codes will be updated where appropriate, in advance of the 2021 to 2022 tax year. It also allows tax codes to be updated in advance of the relevant year where appropriate.
Background to the measure
The measure was announced on 4 February 2021 by Written Ministerial Statement.
Detailed proposal
Operative date
The changes will have effect on and after 6 April 2021.
Current law
The Van Benefit and Car and Van Fuel Benefit Order 2020 (SI 2020/199) set the charges for 2020 to 2021. It set the van benefit at £3,490, the car fuel benefit multiplier at £24,500 and the van fuel benefit at £666.
Proposed revisions
Legislation will be introduced by statutory instrument, amending sections 150(1) and 161(b) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) to increase the cash equivalent of the fuel benefit charges for cars and vans respectively based on the September 2020 Consumer Price Index figure. The value of the multiplier for calculating the cash equivalent of the fuel benefit for a car will increase to £24,600 for 2021 to 2022. The flat rate charge for the van fuel benefit will increase to £669 for 2021 to 2022.
The cash equivalent where a van is made available to an employee for private use will increase to £3,500 for 2021 to 2022 by making an amendment to section 155(1B)(a) and (b) of ITEPA.
Separate legislation is being introduced in Finance Bill 2021 in respect of the van benefit for zero emission vans.
Summary of impacts
Exchequer impact (£m)
Van benefit charge
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| - | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Van fuel benefit charge
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| - | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Car fuel benefit charge
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| - | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will impact individuals who use a company van which is available for their private use and /or who are provided with fuel for their private use by their employer. Approximately 211,000 individuals are likely to be affected by the increase in the car and van fuel benefit charge. Approximately, 80,000 individuals are likely to be affected by the increase in the van benefit charge.
These charges are uprated each year and are in line with expectations. It is anticipated that these individuals will pay more tax as a result of the increases.
This measure is not expected to impact on family formation, stability or breakdown as any tax increase is expected to be minimal.
Customer experience is expected to stay broadly the same because these are annual upratings which do not require customers to behave differently. Customers affected by these upratings will have to familiarise themselves with the increase in charges.
Equalities impacts
This measure will impact men more than women, as the majority of employees who make private use of employer-provided vans or are provided with fuel for private mileage in company vehicles are men.
It is not anticipated that this measure will have impacts on other groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on an estimated 50,000 employers and civil society organisations. One-off costs include familiarisation with the new rates and could include businesses having to update their systems to reflect the new figures for calculating the van benefit charge and car and van fuel benefit charges. There are not expected to be any continuing costs.
Customer experience is expected to remain broadly the same as the method of reporting these charges remains the same.
This measure is not expected to impact civil society organisations.
Operational impact (£m) (HMRC or other)
The financial consequences to HMRC of implementing these changes will be in the region of £200,000.
These measures can be implemented at no additional cost to Other Government Departments.
Other impacts
The changes to the car and van fuel benefit support the government’s climate change agenda by discouraging excess private mileage in company vehicles.
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns.
Regulations relating to the van benefit charge and the car and van fuel benefit charges are normally reviewed on an annual basis.
Further advice
If you have any questions about this change, please contact the Employment Income Policy Team by email employmentincome.policy@hmrc.gov.uk.