20 February 2018

Government confirms April 2020 tax switch to WLTP following consultation

The government has confirmed that it will change the system for measuring carbon dioxide (CO2) emissions to the Worldwide Harmonised Light Vehicle test Procedure (WLTP) for company car benefit-in-kind tax and Vehicle Excise Duty purposes from April 6, 2020 subject to consultation.

However, while the government, following its initial announcement in the Budget Statement, has confirmed that fleets have a two-year notice of the change-over date to WLTP for vehicle tax purposes, they still have no idea of the structure of either company car benefit-in-kind tax or Vehicle Excise Duty under the regime.

The government is also planning that all vehicle manufacturers change over to new WLTP fuel consumption figures in their promotional material and advertising for all vehicles on January 1, 2019.

The timeline change-over to WLTP from the current New European Driving Cycle system for measuring vehicles CO2 emissions and MPG is contained in a consultation document - ‘Road Vehicles: Improving Air Quality and Safety’ - published by the Department for Transport.

The structure of company car benefit-in-kind tax and Vehicle Excise Duty under WLTP is critical because industry experts have suggested that CO2 figures on a car-by-car basis could increase by about 20% in comparison with those produced under the outgoing NEDC regime.

Industry groups have called for a recalibration of both company car benefit-in-kind tax and Vehicle Excise Duty emission bands to ensure revenue neutrality and avoid any tax increases, which could be a further nail in the coffin of company car demand with employees opting to take cash.

However, whether CO2 emission thresholds will be recalibrated to take account of any increase remains to be seen. If tax thresholds remain unchanged - tax rates have already been announced to the end of the 2020/21 financial year - then the likelihood is that company car benefit-in-kind tax bills will rise significantly along with Vehicle Excise Duty rates.

The consultation also outlines that the government is looking at creating an offence relating to motor manufacturers supplying vehicles fitted with emission defeat devices following the recent Volkswagen ‘dieselgate’ scandal and, what it calls, “the strong imperative to improve air quality” as set out in the ‘UK Plan for Tackling Roadside Nitrogen Dioxide Concentrations’.

The government plans to introduce legislation applicable to the new rules during April following the consultation, which runs until March 2. The consultation document is available here.