2 December 2015

U-turn by Chancellor over 2016 abolition of 3% diesel company car tax supplement

The government is retaining the 3% diesel company car benefit-in-kind tax supplement until April 2021, thus reversing a decision announced in the 2012 Budget.

It had been expected that from April 2016 the 3% diesel supplement differential would be removed so that diesel cars would be subject to the same level of tax as their petrol-engined rivals.

However, amid the ongoing furore over the relevance of the current vehicle emissions testing regime and the moves to introduce a system linked to real-world driving, Chancellor of the Exchequer George Osborne made a U-turn on the 2012 decision in this week’s Autumn Statement.

He told the House of Commons that the supplement would be retained until new European Union-wide emissions testing procedures would ensure new diesel cars met air quality standards even under strict real-world driving conditions.

Retention of the 3% supplement is forecast to raise an additional £1.36 billion for HM Treasury in the five years to 2020/21.

The British Vehicle Rental and Leasing Association criticised what it called the ‘attack on company car drivers’.

Chief Executive Gerry Keaney said: “We’re disappointed with the Chancellor’s decision to defer the removal of the 3% diesel supplement. This move will penalise company car drivers for decisions they have already made, based on the Chancellor’s 2012 announcement that the supplement would be lifted in 2016. What is especially frustrating is that many of these motorists are being penalised for driving some of the latest, safest, most fuel-efficient vehicles on UK roads.”

ACFO Chairman John Pryor agreed saying: “ACFO is disappointed that the government has decided to retain the 3% company car benefit-in-kind tax diesel supplement until 2021.

“There will be, ACFO is certain, many fleets and company car drivers that have made vehicle choices based on the fact that they would save cash as a result of the previously announced withdrawal of the supplement.

“Over many years, ACFO has been consistent in its call for clarity and long-term decision-making so that fleets and company car drivers could plan for the future in full knowledge of what the tax burden will be. This government U-turn does not assist that process.”