2020 TAX CHANGES EXPLAINED
Strict new emissions tests will affect how much company car tax we pay. Here we look at how the system is changing
REMEMBER the old HMRC advert that claimed “tax doesn’t have to be taxing”? Whoever coined that slogan obviously had no idea what would happen to the company car Benefit-in-Kind (BiK) tax system in the 2020/21 financial year, which starts on 6 April.
These changes, announced in July last year, are a response to the new European WLTP (World harmonised Light vehicle Test Procedure) emission and economy tests, which see new cars assessed using stricter, more realistic criteria than the old NEDC tests involved.
One of the results of these new tests is that a car will have higher on-paper CO2 (carbon dioxide) emissions if assessed under WLTP rather than NEDC regulations – even though its on-the-road emissions will be identical.
Because company car Benefit-in-Kind tax rates are based on how much carbon dioxide (CO2) a car emits, this would result in higher taxation for company car drivers with WLTP-assessed cars.
So the Treasury is changing its BiK rates to take account of the higher on-paper CO2 emissions derived from the new emissions tests; it’s an attempt to ensure drivers with company cars tested under the WLTP regime aren’t unfairly penalised. The way this is being done is by splitting company cars into two groups and using two new, separate sets of Benefit-in-Kind percentage values. The resultant system may be fairer than if the Treasury had left things unchanged, but it has created a structure that is somewhat involved, to say the least.
“The Treasury is changing BiK rates to take into account higher CO2 emissions from new tests”
Increasingly Complex
JUST to show how complicated this system is, look at the diesel car first registered from 6 April 2020 in the second table to your left.
This would have attracted a BiK rate of 33 per cent in the 2020/21 financial year because it is not RDE-compliant and attracts the four per cent diesel surcharge. The new rules, however, knock two per cent off its BiK in the 2020/21 financial year because it was assessed under WLTP criteria, although this cut disappears over the following two years.
It’s also worth noting that CO2 emissions for cars registered from 6 April 2020 are likely to be around 20 per cent higher than those of NEDC-assessed cars, so we have factored this in with the calculations.