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Gear Change Ahead For Company Car Tax

| Duncan & Toplis | 11 October 2019

While April 2020 is a few months away, now is a good time for businesses to prepare for upcoming tax changes which may impact their finances. The government has recently announced one particular change that will affect a number of businesses across the country, which will help them become more eco-friendly.

It has been confirmed that changes to company car tax rules are coming into play from next Spring, and HM Treasury has recently issued a document to help businesses make informed decisions when reviewing company car arrangements.

For cars first registered from 6th April 2020, most company car tax rates will be reduced by two percentage points in 2020-21, before returning to planned rates over the following two years, increasing by one percentage point in 2021-22, and again in 2022-23.

The company car tax rates for cars registered before 6th April 2020 will generally be two percent higher subject to a maximum charge of 37%.

To accelerate the shift to zero emission cars, all zero emission models will pay no company car tax in 2020-21, 1% in 2021-22 before returning to the planned 2% rate in 2022-23.

Making the move to zero emissions

The announcement confirms the emphasis on accelerating the shift to zero emission cars; balancing protecting consumers and helping to meet the Government's climate change commitments.

It follows a Government review of company car benefit-in-kind tax and Vehicle Excise Duty (VED), which comes as a result of the introduction of the Worldwide harmonised Light vehicles Test Procedure (WLTP). WLTP is a laboratory test that is used to measure fuel consumption, pollutant emissions and CO2 emissions from passenger cars.

In 2018, the Treasury opened a review of WLTP and vehicle taxes, prompted by the realisation that the WLTP measurement for carbon dioxide emissions produced significantly higher figures than the former measurement, New European Driving Cycle (NEDC), did.

The increased figures have resulted in the Government making changes to the company car tax scales from 2020/21 to encourage companies to shift towards cars that are more environmentally friendly and efficient. The Treasury paper, 'Review of WLTP and vehicle taxes: summary of responses', is available here for businesses to consider as they assess their fleet before Spring 2020.

If you're unsure whether these changes will impact your company cars, speak to an advisor today.

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