A new tax era for company car drivers

2020 will usher in a new regime for calculating Vehicle Excise Duty (VED) and company car benefit-in-kind (BIK) tax. Fleet Operations outlines the key changes and how you will be affected.

Emissions testing: what has changed?

A new method for measuring car fuel economy and emissions was introduced in September last year, designed to more accurately reflect the true performance of cars on the road.

The more stringent World Light-duty Test Procedure (WLTP) has been made compulsory by the EU for all vehicle manufacturers.  This laboratory testing procedure replaces the outdated NEDC (New European Driving Cycle), designed in the 1980s and based on a theoretical driving profile.

How does WLTP work?

The WLTP driving cycle is divided into four parts, each with different average speeds – low, medium, high and extra high. Each consists of a variety of different driving phases, including stops, acceleration and braking.

The WLTP laboratory test is complemented by a Real Driving Emissions (RDE) test to ensure measures are as closely aligned as possible to what cars emit during actual on-road conditions. This test is conducted over real roads using portable emissions testing equipment.

The new tests measure fuel consumption along with emission pollutants that include carbon dioxide (CO2), nitrogen oxides (NOx) and carbon monoxide (CO).

What are the tax implications?

Benefit-in-kind on company cars is calculated by multiplying the P11D value of your vehicle by the benefit-in-kind tax rate – dictated by its CO2 emissions – and by your income tax rate.

From April 6, 2020, the government is proposing switching over to the WLPT measure for CO2 for the purposes of calculating both VED and company car BIK tax.

During the transitional period to April 2020, cars will have both an NEDC and a WLTP figure for CO2 (the NEDC figure will be calculated by converting the WLTP test result back to a NEDC equivalent). During this time, VED and BIK company car tax rates will still be based on CO2 ratings measured by the NEDC test.

From April 2020, only the WLTP figure will be used for calculating VED and BIK company car tax.

Cars registered before September 2018, however, will continue to be taxed based on the CO2 figures measured by NEDC testing.

How will the change affect you?

It is fair to assume that the CO2 figure relating to your vehicle will be higher under the new testing scheme. This has been acknowledged by the European Automobile Manufacturers Association (ACEA).

As a result, if you’re choosing a new vehicle between now and April 2020, you should consider both the NEDC and WLTP CO2 figures. The former will determine your current tax liability, the latter your future liabilities.

It currently remains unclear whether tax thresholds will be adjusted from April 6, 2020 to take account of higher CO2 figures.

Key dates to remember: a WLTP timeline

September 2018: All cars must be certified by the WLTP testing procedure.

January 1, 2019:  The government proposes that vehicle manufacturers will change to the new WLTP figures for fuel consumption in advertising and other promotional materials. All new cars must be certified according to the WLTP test procedure, and no longer on NEDC WLTP.

April 2020: The government proposes that manufacturers will have to change their published information on CO2 emissions from NEDC to WLTP. As of this date, only the new CO2 figures will be used for VED and company car taxation purposes.