Policy paper

Taxable benefits and rules for measuring carbon dioxide emissions

Published 11 July 2019

Who is likely to be affected

This measure affects individuals and employers who provide company cars for employees that are made available for private use.

General description of the measure

As announced at Autumn Budget 2017, the measure confirms that the carbon dioxide (CO2) emissions figure for the purposes of company car tax (CCT) and related charges will be based on the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) procedure for all new cars registered from 6 April 2020.

For cars measured under the WLTP procedure, most appropriate percentages are reduced by 2 percentage points in 2020 to 2021 compared to the current appropriate percentages for cars with emissions measured under the New European Driving Cycle (NEDC) to help support the introduction of WLTP – for example, emissions generating an appropriate percentage of 8% would have a reduced appropriate percentage of 6%. The appropriate percentages will then be increased by one percentage point for each of the tax years 2021 to 2022 (for example, from 6% to 7%) and 2022 to 2023 (for example, from 7% to 8%). In the tax year 2022 to 2023, the increase will bring the appropriate percentages back to their published rates.

The measure includes changes to the appropriate percentage figures for all cars classified as being zero emission vehicles (ZEVs) under both the NEDC and WLTP test procedures. The appropriate percentage will be reduced to zero per cent for the tax year 2020 to 2021 and will be increased by one percentage point for the tax years 2021 to 2022 (to 1%) and 2022 to 2023 (to 2%). In the tax year 2022 to 2023, the increase will bring the appropriate percentage back to their published rates.

For cars registered on or after 1 October 1999 but before 6 April 2020, the measure clarifies that the CO2 emissions figures for CCT and related charges will continue to be based under the NEDC procedure.

Policy objective

As WLTP is more representative of real-world driving conditions, this measure ensures that CCT and related charges are based on a more robust regime for measuring CO2 emissions.

The introduction of WLTP allows motorists to make more informed purchasing decisions when considering the CO2 impact of their new car. WLTP results in different CO2 values in comparison to the NEDC procedure, and the changes to the appropriate percentages for cars measured under the WLTP procedure support its introduction. The changes to appropriate percentage figures for all ZEVs support the government’s climate change objectives by encouraging take up of ZEVs.

Background to the measure

The CCT system and related charges are currently based on a vehicle’s CO2 emission figure calculated under the NEDC test procedure.

WLTP testing standards were introduced for new registrations in September 2017. From this date, EU legislation required car manufacturers to report CO2 emissions figures from both NEDC and WLTP test procedures.

At Autumn Budget 2017, the government announced that, for the purposes of calculating CCT and related charges, the CO2 emission figure produced under WLTP would be used for new cars registered from April 2020. Legislation was also introduced in Finance Bill 2017-2018 to clarify that NEDC figures should be used for CCT purposes, where more than one emissions figure is recorded, until April 2020.

At Budget 2018, the government announced a review of the impacts of WLTP on vehicle taxes. A summary of the responses and the government’s policy decisions was published on 9 July 2019.

Detailed proposal

Operative date

This measure will have effect for new company cars first registered from 6 April 2020.

For cars registered before 6 April 2020, the CCT and related charges will continue to be based on the NEDC emission figures.

Current law

References to specifying a CO2 emission figure for a car for the purposes of determining the appropriate percentage are in sections 133, 136, 137 and 171 of the Income Tax (Earnings and Pensions) Act 2003.

The current legislation specifies that where more than one emissions figure is recorded on an EC certificate of conformity or a UK approval certificate, the WLTP value should be ignored. Section 139 of Income Tax (Earnings and Pensions) Act 2003, as substituted by section 2 of the Finance (No 2 Act) 2017 with effect from 2020 to 2021, provides for a range of appropriate percentages applying to cars with different emissions figures.

Proposed revisions

Finance Bill 2019 introduces primary legislation to clarify that all new cars provided to employees and available for private use which are first registered from 6 April 2020 will be taxed according to the CO2 emissions figure measured under the WLTP procedure.

The legislation introduces a modified table of WLTP appropriate percentages to be used for the purposes of CCT and related charges for cars first registered on or after 6 April 2020 for the tax years 2020 to 2021 and 2021 to 2022.

The legislation also introduces changes to the appropriate percentage for zero emission cars (ZEVs) that will apply for the tax years 2020 to 2021, 2021 to 2022 and 2022 to 2023.

The amendments also clarify that, for the purposes of CCT and related charges, cars first registered on or after 1 October 1999 but before 6 April 2020 will continue to be taxed on the basis of the CO2 emissions figure measured under the NEDC procedure.

The legislation remains unchanged for cars first registered before 1 October 1999.

Summary of impacts

Exchequer impact (£m)

2018 to 2019 2019 to 2020 2020 to 2021 2021 to 2022 2022 to 2023 2023 to 2024
           

The Office for Budget Responsibility (OBR) included the impact of adopting the WLTP for all new company cars registered from 6 April 2020 in their forecast at Budget 2018.

The final costing of the changes to appropriate percentages will be subject to scrutiny by the OBR, and will set out at Budget 2019.

Economic impact

This measure is not expected to have any significant macro-economic impacts.

Impact on individuals, households and families

There are currently around one million company car drivers. This measure will impact employees who are provided with a new car that is registered on or after 6 April 2020. These individuals will need to familiarise themselves with the changes to ensure the CO2 emissions as determined under WLTP or NEDC is used for the purposes of CCT and related charges. Individuals will benefit from the reduction in all appropriate percentages in 2020 to 2021 and by one percentage point in 2021 to 2022. Drivers of ZEVs under both the NEDC and WLTP procedure will benefit from the zero percent for the tax year 2020 to 2021. It is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts on groups sharing protected characteristics.

Impact on business including civil society organisations

This measure will have a negligible impact on businesses who provide new company cars from 6 April 2020. Businesses will need to ensure the CO2 emissions figure as modified under WLTP is used for the purposes of calculating CCT and related charges. One-off costs will include familiarisation with this change and also adjusting the appropriate percentages as follows:

For cars measured under the WLTP procedure, reduces all appropriate percentages by 2 percentage points in 2020 to 2021 compared to the current appropriate percentages. The appropriate percentages will then be increased by one percentage point for the tax years 2021 to 2022 and 2022 to 2023.

In respect of ZEVs under both NEDC and WLTP procedure, to 0% for the tax year 2020 to 2021 and to be increased by one percentage point for the tax years 2021 to 2022 and 2022 to 2023. There are not expected to be any ongoing costs. This measure is not expected to impact civil society organisations.

Operational impact (£m) (HMRC or other)

This measure will not have any operational impact for HMRC who collect CCT. However, for cars registered after 6 April 2020, HMRC will use CO2 figures compatible with the new WLTP system in the collection of CCT and related charges.

For cars registered before 6 April 2020, HMRC will continue to use the current NEDC test in the collection of CCT and related charges.

Other impacts

Wider environment impact - this measure supports the government’s climate change objectives by encouraging the take up of lower emission vehicles by motorists.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

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

Further advice

If you have any questions about this change, please contact Employment Income Policy Team by email at: employmentincome.policyteam@hmrc.gov.uk.

Declaration

Robert Jenrick MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.