In its long-awaited response to the review of company car tax, HM Treasury announced it was binning previously published BIK rates for 2020/21, in an effort to mitigate more accurate, and as a result higher, vehicle CO2 emissions shown in the Worldwide harmonised Light vehicle Test Procedure (WLTP).
Instead, it revealed two new BIK tables for company car drivers: one for those driving a company car registered after April 6, 2020, based on WLTP CO2 figures, and one for those driving a company car registered before the same date, based on NEDC-correlated CO2 figures.
Despite a new eye-catching rate of 0% for pure electric vehicles (EVs) from April 2020, some company car drivers could face a year-on-year increase of more than 10%, while others could be paying hundreds of pounds more to drive exactly the same company car as a colleague.
WLTP impact on CO2
Fleets had already seen CO2 values increase by 10% or between 10-15g/km, on average, for cars tested under the old NEDC emissions testing regime compared with NEDC-correlated figures derived from the new WLTP value, resulting in higher tax bills.
However, evidence provided by manufacturers showed that more than 50% of cars would also see an increase from NEDC-correlated emissions to WLTP values, of between 10% and 20%, when they would be used for tax purposes for cars registered after April 6, 2020.
Under HM Treasury’s original rates, in 2020/21 the BIK percentage would have increased from 29% to 30%, equating to a new annual charge of £1,538.40 – a 3.5% year-on-year rise.
The new BIK table for cars registered before April 6, 2020, maintains that 30% rate for the next three tax years, up to and including 2022/23.
However, if a fleet replaces that Golf with an identical model next April, the driver would incur a 32% BIK rate due to the higher WLTP-calculated CO2 figure, resulting in a year-on-year increase of more than £150 or 10.5%.
Furthermore, two drivers could have exactly the same model registered days apart, but one would pay £102 more than their colleague during the same tax year (2020/21) thanks to the different tax rates and CO2 emissions calculations the Government intends to employ.
The disparity would also grow year-on-year; by £153 in 2021/22 and by more than £200 the following year.
There are similar discrepancies for a 40% taxpayer; take a BMW 320d M Sport, for example. It has a NEDC-correlated value of 118g/km, with a WLTP range from 133-139g/km, almost an 18% increase at the upper end. The original 2020/21 rates would have resulted in the BIK rate increasing from 31% to 32%, equating to a new annual charge of £4,655.36 – a year-on-year increase of just over 3%.
The new BIK table for cars registered before April 6, 2020, maintains that 32% rate for the next three tax years, up to and including 2022/23.
However, replace that car with exactly the same model next April, at 139g/km (WLTP) it attracts a BIK rate of 34% and, with a P11D price of £36,370, leaving the driver facing an increase of almost 10% or more than £430, year-on-year.
Furthermore, two drivers could have exactly the same model registered days apart, but one would pay £290 more than their colleague during the same tax year (2020/21) thanks to the different tax rates.
The disparity would again grow year-on-year; to £430 in 2021/22 and to £580 the following year.
WLTP not tax neutral
The 4% diesel supplement stays, with RDE2-compliant diesels exempt from the charge.
Fleets started taking delivery of the first RDE2 diesel cars earlier this year, with manufacturers promising that more models will follow.
EV company car drivers were already looking forward to a much reduced rate of 2% for 2020/21; the 0% BIK tax rate will now mean they pay no company car tax at all for 12 months from next April. The rate for zero emission cars then increases to 1% in 2021/22 and 2% in 2022/23.
For a 20% tax-payer, driving a Nissan Leaf 62kw e+ Tekna, with a P11D price of £39,340, their company car tax bill will fall by £1,259 from April, 2020.
The BIK rate was due to fall to 2%, before the new rates were published, so there was already a significant saving to be had by choosing a zero emission car.
HMRC statistics published days before Treasury issued the new tax tables show that in 2016/17 – the last available data set – less than 1% drove a zero emission car while 3% had a car with emissions between 1-50g/km of CO2.
Carmakers have already seen demand for alternative fuel vehicles outstripping supply and the situation may not improve anytime soon due to a lack of batteries.
Car vs Cash
The lack of long-term tax rates for company cars and the impact of WLTP have been cited by the fleet industry for more employees choosing cash over a car.
Indeed, BIK statistics released in the past few weeks show a 50,000 decline in the number of company car drivers, down from 940,000 to 890,000.
HMRC said initial analysis suggests a new way of reporting company car tax for some employers may have “significantly” skewed the figures.
However, the Government dismissed claims WLTP was to blame. The Treasury said: “Significant evidence was not provided (from the consultation) 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.”
It has also now provided a view of future company car tax rates up until April 2023.
It says that “by providing clarity of future appropriate percentages, businesses will have the ability to make more informed decisions about how they make the transition to zero emission fleets”.
It added that rates beyond 2022-23 remain “under review and will be announced at future fiscal events”.
“The Government aims to announce appropriate percentages at least two years ahead of implementation to provide certainty for employers, employees and fleet operators,” The Treasury has said.