Personal Tax: changes to bands for ultra-low emission vehicles in company car tax
Published 5 December 2016
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This publication is available at https://www.gov.uk/government/publications/personal-tax-changes-to-bands-for-ultra-low-emission-vehicles-in-company-car-tax/personal-tax-changes-to-bands-for-ultra-low-emission-vehicles-in-company-car-tax
Who is likely to be affected
Businesses and employers that provide company cars and employees provided with company cars that are made available for private use.
General description of the measure
This measure introduces 11 new bands for ultra-low emission vehicles (ULEV’s) below 75 gCO2/km from 2020 to 2021 including a separate zero emission band. Some of the lowest CO2 bands are based on the ‘electric range’ of the vehicle, as well as the CO2 emissions. This is the maximum distance the vehicles can travel in pure electric mode without recharging the battery or using the combustion engine of the plug-in vehicle.
The appropriate percentage applied to the list price of company cars will increase in 2020 to 2021 by one percentage point for cars with CO2 emissions of 90 gCO2/km and above, to a maximum of 37%.
Policy objective
This measure incentivises the very cleanest cars using the most advanced technologies from 2020 to 2021 onwards. Some of the new bands will be based on the electric range of the car. This distinguishes between ULEV’s with different plug-in hybrid technologies and improved battery range, which will focus incentives on the very cleanest cars that allow most journeys to be zero emissions.
This will support transition to cleaner, zero and ultra-low emission cars, helping to improve air quality in towns and cities and protecting the environment for the next generation.
The increase in appropriate percentage ensures the tax system continues to support the sustainability of public finances.
Background to the measure
At Budget 2016, the government announced that it would consult over the summer on changes to ULEV bands to focus incentives on the very cleanest cars.
This measure was announced at Autumn Statement 2016.
Detailed proposal
Operative date
The measure will have effect on and after 6 April 2020.
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. This is expressed as the appropriate percentage. Section 139(2)(a) and (aa) of ITEPA made provisions for the current two bands of ULEV’s for example, 0 to 50 gCO2/km and 51 to 75 gCO2/km. The appropriate percentages for these bands are set to increase to 16% and 19% respectively in 2019 to 2020.
Proposed revisions
Legislation will be introduced in Finance Bill 2017 to make the following changes:
Section 139 of ITEPA sets out the basis for calculating the appropriate percentage for cars with CO2 emissions. From 6 April 2020, the graduated table of company car tax bands will now include a differential for cars with emissions of 1 to 50 gCO2 per km based on the electric range of the car.
For cars with an electric range of 130 miles or more, the appropriate percentage is 2%; for cars with an electric range of between 70 to 129 miles, the appropriate percentage is 5%; for 40 to 69 miles, the appropriate percentage is 8%; for 30 to 39 miles, the appropriate percentage is 12% and for less than 30 miles, the appropriate percentage is 14%.
For cars that can only be driven in zero-emission mode, the appropriate percentage is 2%.
For all other bands with CO2 emissions of 51 gCO2 per km and above, the appropriate percentage will be based on the CO2 emissions only. For cars with emissions of 51 to 54 gCO2 per km the appropriate percentage is 15%. For cars with emissions above 54 gCO2 per km, the bands are graduated by 5g CO2 per km and the appropriate percentage increases by 1% for each 5 gCO2 per km band. For example, 16% for 55 to 59, 17% for 60 to 64, up to a maximum of 37%. For cars with emissions above 90 gCO2/km, the appropriate percentage will increase by 1% in comparison to 2019 to 2020 levels.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 |
|---|---|---|---|---|---|
| - | - | - | - | +25 | +5 |
These figures are set out in Table 2.1 of Autumn Statement 2016 as ‘Company car tax: reforms to incentivise ULEVs’, and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2016.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
The costing allows for a reduction in fuel benefit take-up due to the higher charge and increases in take-up of ULEV and electric company cars as a result of the change in bandings.
Impact on individuals, households and families
The measure is not expected to impact on family formation, stability or breakdown. The measure is also not expected to have any significant impact on individuals. Employees with a company car may be impacted.
Equalities impacts
This measure is not expected to have any adverse impact on those with protected characteristics who are employed with company cars. Around 950,000 people are currently recipients of a company car benefit. This number is not expected to change significantly over the scorecard period. Around 75% of these are male, 25% female.
Impact on business including civil society organisations
This measure is expected to have an impact on businesses that provide company cars to their employees. Affected businesses will need to research, store and update an additional piece of company car data (the electric range figure) where applicable. HM Revenue and Customs (HMRC) estimates this burden at £137,000 a year.
There will be a negligible one-off familiarisation cost to these businesses.
There is no impact on civil society organisations.
Estimated one-off impact on administrative burden (£m)
| One-off impact | (£m) |
|---|---|
| Costs | negligible |
| Savings | - |
Estimated on-going impact on administrative burden (£m)
| Ongoing average annual impact | (£m) |
|---|---|
| Costs | 0.1 |
| Savings | - |
| Net impact on annual administrative burden | +0.1 |
Operational impact (£m) (HMRC or other)
Changes will be required to HMRC Information Technology systems to implement this measure at a one-off estimated cost of £950,000. Guidance will also be updated at negligible cost.
Other impacts
Wider environment impact: this measure, together with the wider support the government provides for ULEV’s, will encourage the uptake and manufacture of ULEV’s. However, given that the market is at an early stage of development it is not possible to precisely estimate the impact on ULEV sales.
By strengthening the incentives to purchase zero-emission cars and ULEV’s this measure is expected to contribute to the UK’s carbon emissions targets and air quality objectives.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from tax returns, receipts and regular communication with affected taxpayer groups and trade bodies.
Further advice
If you have any questions about this change, please contact the Employment Income Policy Team via email: employmentincome.policy@hmrc.gsi.gov.uk.