Policy paper

Setting Company Car Tax (CCT) rates for the 3 years to 2019 to 2020

Updated 5 April 2016

Who is likely to be affected

Businesses and employers who provide company cars that are made available for employees’ private use and those employees.

General description of the measure

The appropriate percentage which is applied to the list price of company cars subject to tax will increase by 3 percentage points to a maximum of 37% in 2019 to 2020.

There will be a 3 percentage point differential between the 0-50 and 51-75g CO2/km bands and between the 51-75 and 76-94g CO2/km bands.

The measure also sets the level of the appropriate percentage for the years 2017 to 2018 and 2018 to 2019 for cars which do not have a registered CO2 emissions figure and which cannot produce CO2.

Policy objective

This measure provides an incentive to employers and employees to purchase ultra-low emission company cars and supports the UK’s Ultra-Low Emission Vehicle (ULEV) market. In addition, the increase in appropriate percentages ensures the tax system continues to support the sustainability of the public finances.

Background to the measure

The appropriate percentage for all cars in 2019 to 2020 and for cars with no registered CO2 emissions which cannot produce emissions for 2017 to 2018 and 2018 to 2019 were announced at March Budget 2015.

Detailed proposal

Operative date

This measure will take effect from 6 April 2017 for cars with no registered CO2 emissions which are unable to produce CO2 under any circumstances by being driven, and from 6 April 2019 for all other cars.

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.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 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 2019, the graduated table of company car tax bands will provide for a 16% band for cars with emissions of 0-50g CO2 per km, a 19% band for cars with emissions of 51-75g CO2 per km, a 22% band for other low emission cars (76g-94g CO2 per km); and a 1% increase for each rise in emissions of 5g CO2 per kg from 95g CO2 to the existing maximum of 37%.

Section 140 ITEPA sets out the basis for calculating the appropriate percentage for cars without a CO2 emissions figure. From 6 April 2019, the appropriate percentage for the lowest band (cars with a cylinder capacity of up to 1,400cc) will be set at 23%; the appropriate percentage for cars in the medium band (cars with a cylinder capacity greater than 1,400cc but no more than 2,000cc) will be set at 34%; and the appropriate percentage for cars with a cylinder capacity greater than 2,000cc will remain at 37%.

From 6 April 2017, the appropriate percentage for cars which have neither a CO2 emissions figure nor an engine cylinder capacity and which cannot produce CO2 emissions in any circumstances by being driven will be set at 9%. From 6 April 2018, this will be increased to 13%, and from 6 April 2019, to 16%.

Section 142 sets out the appropriate percentage for cars first registered before 1 January 1998. From 6 April 2019, the appropriate percentage for the lowest band (cars with a cylinder capacity of up to 1,400cc) will be set at 23% the appropriate percentage for cars in the medium band (cars with a cylinder capacity greater than 1,400cc but no more than 2,000 cc) will be set at 34%; and the appropriate percentage for cars with a cylinder capacity greater than 2,000cc will remain at 37%.

A table of rates can be found in the ‘Overview of Tax Legislation and Rates’ document that is published alongside Budget 2016.

Summary of impacts

Exchequer impact (£m)

2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021
- - - +315 +320

These figures represent the Exchequer impact of ‘Company car taxation: 3ppt increase in 2019 to 2020’, which are set out in Table 2.2 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside March Budget 2015.

The Exchequer impact of changes in the appropriate percentages for cars with no registered CO2 emissions which cannot produce emissions for 2017 to 2018 and 2018 to 2019 formed part of the figures for ‘Company Car Tax: continuing to increase by 2 ppt in 2017 to 2018 and 2018 to 2019’. These figures are set out in Table 2.1 of Budget 2014 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2014.

Economic impact

By maintaining lower taxation for ULEVs, the measure will support the take-up and development of ULEVs in the UK. This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

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

Equalities impacts

It is not anticipated that this measure will have adverse impacts on any group with protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses and civil society organisation. Those businesses affected by the change will incur a negligible one-off cost to update their systems. There are not expected to be any additional on-going costs.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other)

There will be no significant operational impact on HMRC.

Other impacts

Carbon emissions: by strengthening the incentive to purchase zero-emission cars and ULEVs this measure is expected to contribute to the UL’s carbon emissions targets and other air quality objectives. Other impact have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through regular communication with taxpayer groups affected by the measure.

Further advice

If you have any questions about this change, please contact the Employment Income Team on Telephone: 03000 521 589 or email: employmentincome.policy@hmrc.gsi.gov.uk.