The Treasury has had a rethink on company car tax rules which may make you review your company car needs.
Do you know your WLTP from your NDEC? If you drive a company car, it might be useful to understand the distinction between the two:
* WLTP is the Worldwide Harmonised Light Vehicles Test Procedure, the latest way to measure vehicle emissions and fuel consumption based on something approaching real world data. For cars registered from 6 April 2020, the WLTP figures will be the yardstick for company car tax (and vehicle excise duty).
* NDEC is the New European Driving Cycle, which for years has provided emission and fuel consumption measures and is the current basis for company car tax. Last updated in 1997, it has become a discredited metric because of the way it has been gamed by car manufacturers. Just to confuse matters further, at present there are also NDEC numbers being published that are calculated by adjusting the WLTP figures which manufacturers now must produce.
The switch from the unrealistic NDEC to the more realistic WLTP has resulted in measured CO2 emission figures increasing, even though what comes out of the exhaust pipe is unaltered. The size of the increase varies between vehicles, but European Commission research in 2017 suggested an average of 22% for petrol cars and 20% for diesels, with smaller engines attracting the largest rise.
Company car tax scales for 2020/21, when WLTP starts to apply to new vehicles, were set back in 2017, before the full impact of WLTP was understood. In July 2019 the Treasury announced that the company car scale rates set in the Finance (No 2) Act 2017 for cars registered after 5 April 2020 would all be cut by 2% in 2020/21 and 1% in 2021/22. NDEC figures will continue to be used for older cars.
Good and bad news
The good news is that in the next tax year electric-only vehicles will have a taxable benefit of zero, whereas at present the benefit is 16% of their list price. The bad news is that other newly registered cars will mostly see an increase in their benefit value over the 2019/20 figure because of the higher WLTP measures of CO2 emission.
For example, a £30,000 petrol car with 104g/km NDEC emission now (and a 2019/20 taxable benefit of £7,200) could have WLTP emission figure of 126g/km, implying a 2020/21 benefit value of £8,400 if registered after 5 April 2020.
If you are due to change your company car in the next year, make sure you know what tax you are going to pay for it. It might be worth making sure the car is registered before 6 April 2020. It could also be wise to review whether, as the tax screw is turned further, a company car makes financial sense.
The value of tax reliefs depends on your individual circumstances.
Tax laws can change.
The Financial Conduct Authority does not regulate tax advice.
The contents of this article is for information purposes only and represent the opinion of Pryor Portfolio Management Limited only. No action should be taken on the basis of this article alone. We always recommend you seek more detailed independent financial advice before taking action – feel free to contact us at any time.