The annual taxable benefit for company cars is calculated as a percentage of the list price of the car based on the level of CO2 emissions. For cars registered before 1 January 1998 the charge is based on engine size. The percentages currently range from 5% to 37%, the lowest percentage is for cars with CO2 emissions ranging from 0-50 g/km and the highest for cars with CO2 emissions over 210 g/km. There is also a diesel supplement of 3% for all bands, subject to a maximum rate of 37%.
The diesel supplement was due to be abolished with effect from 6 April 2016. However, the abolition of the supplement has now been cancelled and the supplement will be retained until April 2021. This date has been chosen as by this time new EU-wide testing procedures to ensure that future diesel cars meet expected air quality standards under strict ‘real world’ driving conditions will be in place.
The cancellation of this change will affect many company car drivers who had purchased diesel cars in the expectation that they would be paying less tax from April 2016. The recent Volkswagen scandal, where the company admitted using ‘defeat devices’ in diesel cars to trick the emissions reading to be lower than is actually the case, may also have had some bearing on the government’s decision to cancel plans to remove the diesel supplement.
The treasury coffers will benefit from the decision by an additional £280m in 2016-17 and similar amounts in future years until 2021 as a result of this decision.