Policy paper

Income Tax changes to the van benefit charge from 6 April 2021

Published 21 July 2020

Who is likely to be affected

Business and employers who provide company vans which do not emit carbon emissions when being driven (zero emission vans) and employees who are provided with such company vans that are also available for private use and the restricted private use condition is not met.

General description of the measure

This measure amends existing legislation to reduce the van benefit charge (VBC) for zero emissions vans to £nil. VBC for zero-rated vans is currently a proportion of the flat-rate charge payable by an employee provided with a company van by their employer that can be used privately, except for what is substantially ordinary commuting.

Policy objective

The objective is to incentivise the uptake of zero emissions vans and support the government’s commitments to achieving its ‘Road to Zero’ targets. Vans tend to do more mileage and be more polluting than cars. Transport is now the largest sector for domestic UK greenhouse gas emissions and a significant proportion of this is accounted for by road transport.

Background to the measure

At Budget 2014, the government announced the van benefit charge for would be a percentage of the flat rate van benefit charge for conventionally-fuelled vehicles until April 2020. These changes were legislated for in Finance Act 2015.

At Budget 2015, the government announced that the planned increases to the percentages for 2016 to 2017 and 2017 to 2018 would be deferred to 2018 to 2019 and the percentages would increase by 20% for each subsequent tax year reaching to 100% in 2021 to 2022. These changes were legislated for in Finance Act 2016.

At spring Budget 2020, the government announced it would reduce the van benefit charge to £nil for all company vans that emit no carbon emissions under any circumstances when being driven from 6 April 2021.

Detailed proposal

Operative date

The changes will have effect on and after 6 April 2021.

Current law

Section 154 of the Income Tax (Pensions and Earnings) Act 2003 (ITEPA) provides for a van benefit charge. The charge applies when a van is made available to an employee by reason of the employee’s employment and is also made available for private use unless it meets the conditions of restricted private use, such as substantially ordinary commuting. The benefit of the van is treated as earnings from the employment. The benefit is subject to income tax on the employee and Class 1A National Insurance contributions on the employer.

If the employee is liable for the charge, it is normally applied as a standard flat rate value. The charge is not dependent on the value of the van or the proportion of private use within the period it has been made available, the conditions for restricted private use have not been met.

For the period 6 April 2010 to 5 April 2015, the legislation provided for a van benefit charge of £nil for vans which could not, under any circumstances, produce CO2 emissions (zero emission vans) by being driven. Section 10(2) Finance Act 2015 introduced a tapered increase in the level of the van benefit charge for zero emissions vans by applying a percentage to the standard charge for conventionally-fuelled vans. The tapered increase started at 20% of the full van benefit charge rising to 100% in 2020 to 2021. Section 11(3) Finance Act 2016 subsequently adjusted the tapered rate for to remain at 20% for each of the tax years from 2015 to 2016 through to 2017 to 2018. The tapered rate increased to 40% for 2018-19, 60% in 2019 to 2020 and is currently set at 80% for 2020 to 2021.

Proposed revisions

Legislation will be introduced in Finance Bill 2020-21 to amend subsection 155(1B)(aa). This will have the effect of reducing the cash equivalent of the van benefit charge to £nil for the tax year 2021 to 2022 onwards for vans that emit zero CO2 emissions.

Summary of impacts

Exchequer impact (£ million)

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
-	negligible	negligible	negligible	negligible	negligible

The measure is expected to have a negligible impact on the Exchequer

Economic impact

The measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure will impact an estimated 200 employees who are provided with a company van that produce zero emissions when driven that is made available for private use from 6 April 2021. These employees will benefit from a zero rate van benefit charge. Customer experience is expected to remain broadly the same as there is no change to how individuals interact with HMRC.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

This measure will impact men more than women, as the majority of employees who make private use of employer-provided vans 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 will have a negligible impact on fewer than 200 businesses who provide company vans that produce zero emissions when driven from 6 April 2021. One-off costs will include familiarisation to the rate of van benefit charge for zero emission vans. There are not expected to be any continuing costs. Customers experience is expected to remain broadly the same as the method of reporting remains the same.

There is expected to be no impact on civil society organisations.

Operational impact (£ million) (HMRC or other)

This measure will not have any operational impact for HMRC who collect the VBC, the zero rate will be used for qualifying vans.

Other impacts

Wider environment impact: This measure supports the governments climate change agenda by encouraging the uptake up of vans that emit zero carbon emissions when driven which will help reduce carbon dioxide emissions and improve air quality. It also supports the development and manufacture of zero emission vans in the UK by providing preferential tax treatment of over conventionally fuelled vans.

Other impacts have been considered and none has been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact: employmentincome.policy@hmrc.gov.uk.