Tax that discourages low emission vehiclesMarch 13, 2018
There were no new announcements in today’s Spring Statement for motorists, so here are the details of the previously-announced 2018 tax changes for car drivers that are due to come into effect in April. Firstly, here’s a summary of the headlines – measures which seem to discourage the adoption of low emission vehicles.
- Company car benefit in kind tax on cars with emissions of 0-50g/km of CO2 (ie. primarily pure electric vehicles) will rise from 9% in 2017/18 to 13% in 2018/19 and 16% in 2019/20, before reducing to 2% (depending on electric mileage range) in 2020/21. This discourages company car drivers to buy an ultra-low emission vehicle until April 2020.
- The lowest emission cars have the largest increase in company car benefit in kind tax.
- The government is adding a 3% tax increase to the newest diesel cars. These are the cleanest diesels on our roads in terms of emissions such as particulates and NOx that impact on local air quality. By doing this, the government is discouraging people who drive high mileages to buy a diesel car, which is likely to increase CO2 emissions, as well as fuel use and costs.
- The government is introducing a new Vehicle Excise Duty supplement on all new diesel cars from 1 April, resulting in the First Year Rate of Vehicle Excise Duty jumping to the band above, again having the outcome of discouraging the purchase of the cleanest diesels.
- There is no information about company car benefit in kind tax thresholds beyond 2020 due to uncertainty about the impact of the new WLTP fuel economy and emissions test.
In more detail:
Company car benefit in kind tax and diesel supplement increases
From 6 April, the start of the 2018/19 tax year, the following increases in company car benefit in kind tax will come into effect:
- Rates for cars with emissions of 0-50g/km CO2 increase by 4%
- Rates for cars with emissions of 51-75g/km CO2 increase by 3%
- Rates for cars with emissions above 75g/km CO2 increase by 2%
(See table below)
So the lowest emission cars have the largest increase in company car benefit-in-kind tax.
It means, for example, that an employee driving a 120g/km petrol-engined model will see their tax bill increase from 23% of the P11D value in 2017/18 to 25% in 2018/19.
Benefit in kind tax diesel supplement
The current company car benefit in kind tax diesel supplement will also increase from 3% to 4% at the same time. As a result, employees driving diesel cars will experience a 3% tax hike in total. The supplement increase is estimated by the government to impact on 800,000 employees and is being applied to all diesel cars that are not certified to the Real Driving Emissions 2 standard. No diesel cars currently conform to the Real Driving Emissions 2 standard.
This means that the government is adding a 3% tax increase to the newest diesel cars that are the cleanest in terms of emissions such as particulates and NOx that impact on local air quality. By doing this, the government is discouraging people who drive high mileages to buy a diesel car, which is likely to increase CO2 emissions, as well as fuel use and cost, if they instead opted for a petrol car, or a plug-in petrol hybrid (depending on the use of the car).
When HM Treasury announced the supplement increase in last November’s Budget it forecast that drivers of a BMW 3 Series (CO2 emissions 111-130g/km) would see tax bills rise in 2018/19 by £60 (basic rate taxpayer) and £120 (higher rate taxpayer), drivers of a BMW 6 Series (CO2 emissions 131-150g/km) by £125/250 and drivers of a Ford Focus (CO2 emissions 91-100g/km) by £43/£86.
Company car tax 2017/18 to 2020/21
% 2017/18 2018/19 2019/20 2020/21
Price CO2 (g/km) CO2 (g/km) CO2 (g/km) CO2 (g/km)/electric mileage range
0 N/A N/A N/A
2 N/A N/A N/A 0-50 (zero emission or 130 miles+ EV range)
5 N/A N/A N/A 1-50 (70-129 miles EV range)
7 N/A N/A N/A N/A
8 N/A N/A N/A 1-50 (40-69 miles EV range)
9 0-50 N/A N/A N/A
10 N/A N/A N/A N/A
11 N/A N/A N/A N/A
12 N/A N/A N/A 1-50 (30-39 miles EV range)
13 51-75 0-50 N/A N/A
14 N/A N/A N/A 1-50 (under 30 miles EV range)
15 N/A N/A N/A 51-54
16 N/A 51-75 0-50 55-59
17 76-94 N/A N/A 60-64
18 95-99 N/A N/A 65-69
19 100-104 76-94 51-75 70-74
20 105-109 95-99 N/A 75-79
21 110-114 100-104 N/A 80-84
22 115-119 105-109 76-94 85-89
23 120-124 110-114 95-99 90-94
24 125-129 115-119 100-104 95-99
25 130-134 120-124 105-109 100-104
26 135-139 125-129 110-114 105-109
27 140-144 130-134 115-119 110-114
28 145-149 135-139 120-124 115-119
29 150-154 140-144 125-129 120-124
30 155-159 145-149 130-134 125-129
31 160-164 150-154 135-139 130-134
32 165-169 155-159 140-144 135-139
33 170-174 160-164 145-149 140-144
34 175-179 165-169 150-154 145-149
35 180-184 170-174 155-159 150-154
36 185-189 175-179 160-164 155-159
37 190+ 180+ 165+ 160+
From 6 April 2018, for each tax year, add 4% for diesel cars up to a maximum of 37%. Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt.
Vehicle Excise Duty rates increases
From 1 April the government is introducing a new Vehicle Excise Duty supplement on all new diesel cars first registered from that date. It means that the First Year Rate of Vehicle Excise Duty will be calculated as if cars were in the band above.
For example, a Ford Focus diesel (CO2 emissions 91-100g/km) will be subject to an additional £20 in the first year, a Volkswagen Golf (CO2 emissions 111-130g/km) an additional £40, a Vauxhall Mokka (CO2 emissions 131-150g/km) £310 and a Land Rover Discovery (CO2 emissions 171-190g/km) £410, according to government figures.
As with the company car benefit in kind tax diesel supplement, the change will not apply to the next-generation of clean diesel engines – those with Real Driving Emissions Step 2 standard certification – but no cars currently comply to RDE 2.
From 1 April, Vehicle Excise Duty rates for cars, vans and motorcycles registered before April 2017 and the First Year Rates for cars registered after April 2017 increase in line with the Retail Price Index.
VED for cars first registered on or after 1 April 2018
Emissions (g/km) of CO2 First year rate Standard rate* First Year rate diesel cars
0 £0 £0 £0
1-50 £10 £140 £25
51-75 £25 £140 £105
76-90 £105 £140 £125
91-100 £125 £140 £145
101-110 £145 £140 £165
111-130 £165 £140 £205
131-150 £205 £140 £515
151-170 £515 £140 £830
171-190 £830 £140 £1,240
191-225 £1,240 £140 £1,760
226-255 £1,760 £140 £2,070
Over 255 £2,070 £140 £2,070
Cars with a list price above £40,000 pay a £310 supplement for five years. After the five-year period the vehicle will be taxed at the applicable standard rate.
There’s an alternative fuel discount of £10 in 2018/19 for all cars, applicable to first year rate and standard rate.
Car and van fuel benefit charges and van benefit charge
The annual increase in car and van fuel benefit charges and the van benefit tax charge means that in 2018/19 the rates are:
- Car fuel benefit charge: £23,400 (2017/18: £22,600)
- Van benefit in kind tax charge: £3,350 (2017/18: £3,230)
- Van fuel benefit charge: £633 (2017/18: £610)
The tax charge for zero-emission vans increases to 40% from 20% of the main rate in 2018/19.
Capital allowances and the lease rental restriction
CO2 emission thresholds for capital allowances on cars bought outright by companies will tighten from 1 April 2018. The new rates are:
- Vehicles up to 50g/km (reduced from 75g/km): Companies can write down the full cost against their taxable profits
- Vehicles emitting 51-110g/km (reduced from 130g/km): Companies can write down 18% of the cost of the car against their taxable profits each year, on a reducing balance basis
- Vehicle above 110g/km: Companies can write down 8% of the cost of the car against their taxable profits each year, on a reducing balance basis.
The 100% First Year Allowance threshold is reduced to 50g/km from 75g/km.
Leasing companies, which are ineligible to claim 100% first year writing down allowances on cars, will be restricted to 18% (0-110g/km) and 8% (from 111g/km) on a reducing balance basis.
The CO2 threshold for the 15% lease rental restriction is linked to the threshold for capital allowances for business cars, so the rate will be reduced from 130g/km to 110g/km from April 2018. It means that companies that lease can only deduct 85% of any rental payments against their taxable profits on cars with emissions above the threshold.
Key fleet-related tax issues the Chancellor did not resolve in the Spring Statement
The fleet industry has been anxiously waiting for clarity on a number of issues and hoping that the Chancellor would change existing policy on other matters. However, the Spring Statement did not answer those questions.
As a result, fleet decision-makers and company car drivers:
- Remain perplexed as to why company car benefit in kind tax on cars with emissions of 0-50g/km of CO2 will rise from 9% in 2017/18 to 13% in 2018/19 and 16% in 2019/20, before reducing to 2% (depending on electric mileage range) in 2020/21. As the government continues to call on businesses to include plug-in vehicles on their fleets, businesses have called for the tax hikes to be reversed immediately and not delayed until April 2020 to encourage demand. The British Vehicle Rental and Leasing Association (BVRLA) said in a letter to Mr Hammond ahead of the Spring Statement that the “current tax rate was putting the brakes on new electric vehicle registrations from company car drivers, who are postponing the jump to electric until the tax regime offers an incentive”.
- Are still in the dark about company car benefit-in-kind tax thresholds beyond 2020/21. Many fleets operate on four-year vehicle replacement cycles and the government has previously published tax rates for five years to enable future acquisition decisions to be made in the full knowledge of the taxation framework. However, fleet decision-makers and company are drivers are currently having to make decisions in the dark as tax rates post 2020/21 are unknown. The picture is further complicated by the fact that the government announced in the November 2017 Budget that from April 2020, company car benefit-in-kind tax – and Vehicle Excise Duty – would be derived from CO2 figures produced under the newly introduced Worldwide harmonised Light vehicle Test Procedure (WLTP). Industry experts have suggested that on a car-by-car basis CO2 emissions could increase by 20% when compared with those obtained under the previous New European Driving Cycle (NEDC) regime. However, whether or not tax rates will be recalibrated as a result to avoid potentially significant benefit-in-kind increases is unknown. The BVRLA called for company car benefit-in-kind tax rates beyond 2020/21 and said in its letter: “Many people are abandoning their company car and making their own arrangements due to uncertainty over what their tax bill will be in the future.”
- Continue to wait to see if the taxation of benefits in kind and employee expenses, including mileage reimbursement payments, will change as a result of a government investigation. A year ago (March 2017), the government called for evidence as to how the tax system could be made fairer and more coherent as it currently treated different forms of benefits in kind and employee expenses inconsistently. However, it has yet to publish its findings or recommendations.