Company Car Tax

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Emissions admissions

In the wake of Volkswagen’s admissions on the emissions of its vehicles the UK is to launch its own investigation into vehicle emissions testing.  The Vehicle Certification Agency plans to work with car makers to re-run tests previously carried out and will then compare the results against real world driving emissions.  At present this is an issue affecting just VW and there is no suggestion that any other company is involved, but it does at least raise the question that IF this is an industry wide issue then what could be the impact on company car tax?


Company car benefit is calculated by taking the list price of the new vehicle (rather than the price paid by the company in the case of second hand vehicles) then multiplying this by a percentage based on the official CO2 emissions of the car; a useful table of benefit in kind rates can be found here. The government tends to increase these percentages each tax year, so for example by 2019/20 a driver of a Nissan Leaf Electric Car would apply the same percentage as a driver of a Nissan Qashqai 1.5 DCi in 2014/15.  The tax on the company car is calculated at 20% or 40% on the benefit depending on whether the taxpayer is basic rate or higher rate.  The company also pays national insurance at 13.8% on the benefit.  In addition there is a further benefit in kind based on the emissions of the vehicle if the company provides employees with private fuel.

CO2 emissions are therefore key to the calculation of benefit in kind tax charges.  So the impact of VW fitting millions of vehicles with software designed to provide false readings in CO2 tests could be hugely significant for company car drivers.  Whilst there’s no expectation that HMRC will take retrospective action on company car drivers and companies (although they are still to provide confirmation), it is possible that future tax charges will need to be recalculated based on the revised CO2 emissions of VW vehicles.