October 6, 2016
John Kingsley looks at the scope of the Consultation on the taxation of ultra-low emission company cars and Atlantic Tax responds formally…
The Consultation Document (Condoc) published in August 2016 seeks views from interested parties on the redesign of the company car tax bands from 2020 onwards.
Company car tax rates and bands have already been set up to 2019, with the stated aim of providing certainty to businesses. This approach also leads to cars with low emissions at the date of purchase being taxed more heavily as each year passes, but that’s a topic for another day.
One question that springs to mind immediately about this Consultation exercise is whether its focus is too narrow? After all, HM Revenue & Customs (HMRC) has specifically acknowledged that fleet car buying decisions are influenced by a broader range of tax incentives available to businesses and individuals.
The most important of these are the accelerated Capital Allowances and lower rates of Vehicle Excise Duty (VED or Road Tax as it’s better known) available to “green cars”, i.e. those with ultra-low emissions. We sincerely hope that the outputs from the company car tax Consultation are used to inform future changes to these related areas to ensure that there is a coherent tax regime for company cars going forward.
The Condoc also mentions the rapid pace of change in the field of green cars and the temptation to fix the parameters for five years post 2020 should be resisted. Consider the recent announcement made by Formula E’s organisers that drivers won’t have to swap cars mid race due to advances in battery technology. This is quite remarkable given that Formula E is entering only its third season of competition.
Furthermore, some conventional (petrol/diesel powered) cars already have emissions lower than 75 gCO2/km and by 2019/20 there might only be a 3% difference between the company car tax rates applicable to the cleanest electric cars and cleanest conventional cars. It’s possible that there might be no difference at all between them.
As a result, we believe that there should be several changes to the current approach to banding and our specific proposals are set in our formal response to the Condoc, which is summarised below.
Atlantic Tax has also suggested some other more radical changes to the design of the current company car tax regime and explained why we think they are needed.
Condoc response
Q1 – Yes company car tax bands (“the Bands”) should be refined from 2020 onwards to provide stronger incentives for ULEVs.
Q2 – Yes the Bands should be framed by reference to CO2 emissions only. This is simpler that the alternative proposals and there should be an agreed methodology for calculating “overall” emission figures.
Q4 – A4b Wider Bands
Q5 – A5f We suggest increments of 10 gCO2/km below 50 gCO2/km.
Other comments
Bands – scrap them all above say 90 gCO2/km (benchmarked against the industry average for tailpipe emissions on a rolling annual basis) and introduce a single higher rate (say 35%) for all cars with emissions above this threshold.
A three year timeframe would be more appropriate for the new banding regime, given the rapid pace of technological change.
Rates – ensure there is clear daylight between the rates applicable to the cleanest electric and cleanest conventional cars (under current rules the gap is too narrow – only 3%), otherwise the incentives will be weakened.
Introduce an additional incentive for best in class ULEVs, i.e. vehicles with zero emissions and a range of say 350 miles (based on one charge and tested in real world driving conditions).
We suggest a reduction, or even abolition, of the Class 1A National Insurance charge payable on the car tax benefit, which we believe would provide a stronger incentive to Employers to purchase only “best of breed” ULEVs.
We appreciate that there would be a cost to the Exchequer, which would have to be assessed. However, the Government has set itself an ambitious target of zero CO2 emissions by all the cars on the UK’s roads within a generation and additional measures might be needed to achieve this.
Any future changes to the Capital Allowances and VED regimes for ULEVs should take the outputs from this Consultation exercise into account at the very least.
Atlantic Tax Advisory Services Limited, 7 October 2016