Company car tax revisited – the new rules

New vehicle emissions measuring standards coming in from 2020 mean the tax benefits from company cars may not be as useful as they once were.

The Treasury has had a rethink on company car tax rules which may make you review your company car needs.

Do you know your WLTP from your NDEC? If you drive a company car, it might be useful to understand the distinction between the two:

The switch from the unrealistic NDEC to the more realistic WLTP has resulted in measured CO2 emission figures increasing, even though what comes out of the exhaust pipe is unaltered. The size of the increase varies between vehicles, but European Commission research in 2017 suggested an average of 22% for petrol cars and 20% for diesels, with smaller engines attracting the largest rise.

Company car tax scales for 2020/21, when WLTP starts to apply to new vehicles, were set back in 2017, before the full impact of WLTP was understood. In July 2019 the Treasury announced that the company car scale rates set in the Finance (No 2) Act 2017 for cars registered after 5 April 2020 would all be cut by 2% in 2020/21 and 1% in 2021/22. NDEC figures will continue to be used for older cars.

Good and bad news

The good news is that in the next tax year electric-only vehicles will have a taxable benefit of zero, whereas at present the benefit is 16% of their list price. The bad news is that other newly registered cars will mostly see an increase in their benefit value over the 2019/20 figure because of the higher WLTP measures of CO2 emission.

For example, a £30,000 petrol car with 104g/km NDEC emission now (and a 2019/20 taxable benefit of £7,200) could have WLTP emission figure of 126g/km, implying a 2020/21 benefit value of £8,400 if registered after 5 April 2020.

If you are due to change your company car in the next year, make sure you know what tax you are going to pay for it. It might be worth making sure the car is registered before
6 April 2020. It could also be wise to review whether, as the tax screw is turned further, a company car makes financial sense.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.