Uncertainty surrounding company car tax continues following Spring Statement
No Government response to the review on the tax implications of WLTP in the Spring StatementTags: Automotive Corporate Taxation
Employers and employees will have to continue to wait for clarity on whether the Government will make changes to company car tax and Vehicle Excise Duty (VED)
In his Spring Statement on 13th March, the Chancellor did not reveal any changes in response to the review on the tax implications of the Worldwide harmonised Light vehicle Test Procedure (WLTP) which closed last month. Instead, officials would only say the Government would respond to the consultation in the coming months.
This news will likely concern company car drivers, after the Government previously suggested that doing nothing to soften the impact of WLTP could help them achieve their ‘Road to Zero’ climate change targets.
At present, the Government has indicated that the new WLTP CO2 values will be adopted for tax purposes from April 2020, which is expected to trigger further increases for company car drivers.
The rise in company car tax has already seen employees contribute £360 million more in Benefit-in-Kind (BIK) taxation to the Treasury in the year to 2016/17, a rise of 24%, according to Fleet News.
However, the number of people paying BIK has actually fallen from 960,000 to 940,000, which means the average annual cost to a company car driver has risen by £472 to £2,638, or almost £40 per month.
What changes could HM Treasury put into place?
Realign Benefit in Kind tax tables
Upon review of current WLTP data and considering scheduled increases to BIK in April 2020, many cars could increase by several tax bands, hitting company car drivers and employers with further rises.
The Government could realign the BIK tax bands to compensate for the increased costs to company car drivers as a result of WLTP.
Commit to a longer-term view of BIK
The Government previously agreed to a four-year notice period for benefit in kind tax thresholds, but currently the tables do not go beyond March 2021, leaving company car drivers and employers in the dark when it comes to possible tax increases.
An online survey by Fleet News has found that 100% of respondents believe the delay in publishing new BIK rates is having a long-term negative effect on the company car market.
Reconsider the 4% diesel supplement.
In the Autumn Budget of 2017 the Government announced that the existing company car tax diesel supplement would increase from 3% to 4% for cars that didn’t meet the RDE2 emissions test. If this supplement was removed it could offset the cost of the WLTP rises for diesel drivers.
How can you eliminate uncertainty surrounding company car tax?
Employee Car Ownership Schemes (ECOS) can remove the restrictions and costs of a traditional company car benefit and protect both employers and employees from the current uncertainty surrounding WLTP and company car tax.
As ownership is passed to the employee, company car tax does not apply and the employer does not pay Class 1A National Insurance Contributions (NIC) on the provision of the car benefit.
This means that vehicle selection is driven by business need and employee preference, not CO2 emissions and company car tax. Plus, all costs are fixed over the term, as opposed to being subject to increasing BIK taxation and NIC.
This commitment to eliminating uncertainty and protecting employees from scheduled tax increases delivers a best-in-class employee benefit that boosts staff retention and generates financial savings.
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Car Benefit Solutions specialise in the design and implementation of Employee Car Ownership Schemes with robust compliance at the fore.
Click here for more information about how ECOS can benefit your business