TT295: Some relief for company car drivers

In the Autumn 2017 Budget, the government announced that from April 2020 all newly registered cars will have their emission levels for company car tax purposes determined under a new standard known as WLTP (Worldwide Light vehicles Test Procedure). This replaces the previous test known as the New European Driving Cycle (NEDC).  So what you say….?

Well, the WLTP test is widely expected to return higher emission values when compared to the old NEDC test for vehicles tested on a like for like basis, meaning that unless something was to give, company car tax would likely have increased for cars registered after April 2020 even though essentially the car may be identical to a pre April 2020 registered model.

This month, however, the government published the results of its consultation on the introduction of the WLTP test and how this would impact on company car tax and Vehicle Excise Duty (VED).  The result is that generally speaking, the company car tax rates for newly registered vehicles from April 2020 will be discounted by 2% in order to counter the expected higher levels of emissions seen under the WLTP test.  This is great news for all-electric vehicles whose emission result would likely return zero or extremely low result under either test, as those cars will now see their company car BIK rate fall from 2% to 0% from April 2020.  Good news and some respite for electric car drivers who have seen their respective BIK rates steadily climbing in recent years from originally 0% through to 16% in the 19/20 tax year.  For all-electric vehicles only, the good news gets better, since the 2% discount applies even where the car was registered pre-April 2020.  For other cars registered pre-April 2020, the previously published BIK rates (broadly 2% higher) will apply since their emissions will continue to be measured under the old NEDC test.

There won’t be good news for all, however, and some obvious planning points arise – there will be some winners and losers as the 2% discount will clearly not always be representative of the difference between WLTP and NEDC emission results across the board.  If you are thinking about changing your company car bear in mind the impact of the new test and whether the 2% discount is representative.  Similarly, bear in mind that pre-April 2020 registered car emissions will continue to be based on the old NEDC test results – which won’t benefit from the 2% discount – but those emission results may still be favourable when compared to the WLTP outcome.

Finally, good news won’t last long.  The 2% discount is being reduced by 1% over each of the following two tax years, so by tax year 22/23, the discount will have been phased out.