The long-awaited results of the Government’s WLTP review are now in, bringing an announced freeze on company car tax for fleet cars and the introduction of a zero Benefit-in-Kind rate for fully electric cars.

Vehicles registered before 6 April 2020 will see their company car tax bands frozen at the 2020/21 rates until 2022/23

Announced in the October 2018 Budget, the consultation, which closed mid-February, looked at the impact that the new emissions testing cycle will have on company car tax and vehicle excise duty (VED) when it is implemented for tax purposes from April 2020. A new, more accurate testing procedure, WLTP is expected to increase most cars’ reported CO2 figures by 10-20%, having an inflationary impact on emissions-based CO2 taxes like CCT and VED. Although a decision on the WLTP review had been expected in the Spring Statement, the Government shelved a decision, allaying fears that it would take no action at all.

Today’s publication of the results of the review – which has been greeted as bringing a welcome boost to the company car market, benefiting just under a million drivers – shows that it intends not to pocket all of the extra tax take from CCT and VED from WLTP.

The changes mean that those drivers with vehicles registered before 6 April 2020 will see their company car tax bands frozen at the 2020/21 rates up to and including 2022/23 while taxes will continue to be based on NEDC-Correlated CO2 figures.

Meanwhile drivers of company cars registered after 6 April 2020 – all of which will be taxed on their WLTP CO2 figures – actually get a two percentage point tax cut on the former 2020/21 rates from 1g/km upwards, with the maximum 37% BiK now not kicking in till 170g/km. These figures then increase by one percentage point in both 2021/22 and 2022/23, from when the 37% BiK threshold returns to 170g/km.

It will also see all zero-emission company cars paying no tax. All zero-emission company cars will attract a reduced appropriate percentage of 0% in 2020-21, 1% in 2021-22, before returning to the planned 2% rate in 2022-23.

The Government has also confirmed that it will aim to announce appropriate percentages at least two years ahead of implementation to provide certainty for employers, employees and fleet operators. And, the Treasury has also acknowledged the value of the company car market in supporting the transition to zero emission technology.

However, the Government said that existing VED rates will be maintained on introduction of WLTP from April 2020 while a call for evidence will be published later this year “seeking views on moving towards a more dynamic approach to VED which recognises smaller changes in CO2 emissions”. And today’s changes do not affect the Lease Rental Restriction, Capital Allowances or any other CO2-related taxes and incentives but will include fuel benefit charge.

Today’s announcement has been greeted by the BVRLA. Director of policy and membership, Jay Parmar said: “Our regular engagement with policymakers is clearly paying off as there now appears to be a greater appreciation for the importance of our industry in delivering Government’s wider economic and environmental ambitions.

“Recognising the value of the company car market in supporting the transition to zero emission technology is also a positive endorsement for our sector, showing refreshing alignment between government’s environmental and fiscal policies.

“The Treasury is giving back some of the unfair Company Car Tax windfall it was set to receive as a result of WLTP and providing some essential extra visibility on future tax costs for those looking to order their next vehicle. This is a good day for company car drivers and our members.”

Ashley Barnett, head of fleet consultancy at Lex Autolease, also welcomed the changes: “The lack of clarity on the long-term tax regime for company cars has severely hampered uptake, clearly reflected in the most recent car registration figures from the SMMT and the reduction in the number of people paying company car taxation.

“Today’s announcement gives a degree of much-needed certainty to company car drivers and fleet managers. Coupled with the EV infrastructure announcement, it is a welcome sign of the Government’s commitment to stimulating company car uptake and getting newer, cleaner vehicles on the roads, a vital part of its Road to Zero strategy.

“It is really good to see that Benefit-in-Kind (BiK) will be 0% on EVs from April 2021 with this increasing by 1% to reach 2% in 2022-23 regardless of registration date.

“The freeze on BiK for vehicles under NEDCc at 2020-21 levels for two years is also welcome news for the fleet industry. This, coupled with RDE2-compliant diesel vehicles being exempt from the 4% diesel supplement, gives clear foresight for company car fleet decision makers.”

Claire Evans, head of fleet consultancy at Zenith said: “Zenith welcomes the adjustment that has been made by government to limit or remove the impact of the change to WLTP CO2 emissions for many cars, and to freeze company car tax for existing cars. It is especially pleasing that the electric rate has been reduced for electric cars to zero Benefit-in-Kind tax (BiK) in 2020 with a commitment to low tax rates for the following two years, which see a year-on-year 1% increase.

“No doubt with the ever-increasing releases of hybrid, plug-in and electric cars this commitment to lower tax will provide attractive cost options for perk company car drivers, particularly those paying higher rate tax, or for employees with the option to obtain a new, clean, cost-efficient car through a salary sacrifice car scheme.

“Whilst for some cars the move to WLTP may still result in a higher company car tax after the announced 2% reduction, it is important to remember that the cleanest RDE2 compliant diesels will also see a fall of 4%, meaning that clean diesel cars will see an overall reduction in company car tax from April 2020. Great news for businesses where diesel is still the most efficient option for drivers who complete higher mileages.

“Zenith is committed to continuing to work with officials at HM Treasury to secure incentives for low emission cars post 2022/23 tax year, in addition to highlighting the need to make similar adjustments to other vehicle tax thresholds. Today’s announcement is a clear sign that government recognises the pivotal role fleet vehicles play in achieving the objectives set out in the ‘Road to Zero’.”

Alphabet GB also welcomed the response. Chief commercial officer Simon Carr said: “The Government response today is a welcome reduction in the tax burden for most company car drivers. It recognises the important role that businesses and employees play in the transition to ultra-low and zero emission vehicles. From a fleet perspective, it adds a layer of complexity which decision makers will need to understand the operational impacts of prior to communicating with their employee community.”

Carr also greeted the 0% BiK rates for zero-emission vehicle, which he said could see a “renaissance for the company car”  but added: “Let’s also remember that Plug-In Hybrids are still a vital tool in the transition towards mass electrification for many organisations and although they will benefit from this 2% BiK reduction, we hope to see further practical and financial support for these vehicles in the Autumn Budget.