Vehicle excise duty review sees company car tax rates cut

vehicle excise duty review
© iStock/fotoVoyager

A review by the UK government of vehicle excise duty has resulted in substantial cuts to future tax rates on company cars producing zero emissions.

The vehicle excise duty review, conducted between December 2018 and February 2019, aimed to examine the impact of the Worldwide harmonised Light Vehicles Test Procedure (WLTP) on vehicle taxes linked to CO2 emissions. The WLTP is a laboratory testing protocol used EU-wide to gauge the fuel consumption and emissions production of cars, which is officially applied to all new cars built after September 2017.

The review says: “The government recognises the importance of the company car market in incentivising individuals to choose cars with low CO2 emissions, in addition to ultra low and zero emission models, and generating a competitive second-hand market in these vehicles. The government’s analysis suggests that company cars do have – on average – lower CO2 emissions compared to all new registrations. However, significant evidence was not provided to suggest that WLTP will cause individuals to opt out of company cars, or that these individuals would substitute for higher emitting models in the private market.

“The impact of WLTP is – on average – greatest for company cars. In part, this is due to the structure of the bands which are more sensitive to changes in CO2 emissions, and are therefore more effective in driving the decision to choose models with lower CO2 emissions. Whilst the government’s view is that vehicle tax rates should more closely reflect the environmental impacts of driving, it is important that the transition to WLTP is managed. This approach balances the objectives of the review: to both protect consumers and help meet our climate change commitments.”

Following the recommendations of the vehicle excise duty review, which highlighted a ‘need for stability’ when imposing tax rates on zero emissions company cars, the government agreed on a series of reductions to company car tax rates, beginning in 2020: the vast majority of rates on cars first registered after 6 April 2020 are set to drop by two percentage points between 2020 and 2021; while all zero emission vehicle models will pay no company car tax in the same period. The government intends to issue a Call for Evidence later this year as a precursor to developing a more dynamic system, recognising incremental differences in vehicles’ CO2 emissions.

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