November 8th, 2018
by Mark Biggs
From September 2018 all new cars will have their CO2 emissions (together with fuel consumption and pollutant emissions) calculated by reference to a new methodology- the Worldwide Harmonised Light Vehicle Test Procedure- WLTP.
The WLTP methodology is based on real driving data and better matches on-road performance. Before this change, a car’s CO2 was measured using the New European Driving Cycle methodology- NEDC. This was designed in the 1980’s, was based on theoretical driving and is now outdated. The major anticipated advantage of this change is that a more realistic measurement of CO2 emissions should better facilitate the achievement of environmental targets. For individual fleet operators having a more accurate fuel consumption indicator will clearly also help with ongoing cost control. More information can be found at www.wltpfacts.eu
From September 2018 all new cars must be certified according to WLTP, with exceptions for end-of-series vehicles.
However, WLTP figures will not be used for the purposes of Company Car Tax (CCT), company car fuel benefit (CCFB) and Vehicle Excise Duty (VED) until April 2020. Between now and then WLTP figures will be converted to NEDC equivalent figures, officially known as “NEDC correlated”, and these equivalent or correlated figures will be used in CCT, CCFB and VED calculations.
A word of warning. This doesn’t mean that CO2 values will be largely unchanged until 2020. A major vehicle data provider has made some comparisons of (new) NEDC correlated CO2 and original NEDC CO2 for a small sample of like-for-like vehicles and discovered that the new NEDC correlated figures were anywhere between 6% and 18% higher. GKL Leasing’s own recent experience indicates a similar position.
The Government has stated that it will review the impact of WLTP on CCT and VED and report in Spring 2019. CCT rates and bands have already been published for tax years up to and including 2020/21.
What does all this mean for fleet operators and drivers?
Firstly CO2 emissions for existing cars will not be changed. The new NEDC correlated values, and subsequently WLTP values, will only apply to new cars.
There will be uncertainty on how the new regime will affect CCT, CCFB and VED until at least Spring 2019 and possibly beyond.
Given that there is evidence that NEDC correlated values may turn out to be higher than historic NEDC values even if a car is replaced by an absolutely like-for-like car, there is a high chance that the new CO2 emissions will be higher, and this could result in higher CCT, CCFB and VED on new cars, depending on the outcome of the Government’s review and in particular whether CO2 bands will be adjusted. This likely increase in CO2 values is evident from the fact that, with the exception of bands for cars with emissions less than 95g/km, CO2 bands increase in steps of 5g/km.
Early on in the transition period it is possible that indicative CO2 values provided in new lease quotations will be replaced by significantly higher CO2 values on the final V5C. It is very difficult for leasing companies to avoid this because they are reliant on data from 3rd parties for the quotations.
Fleet operators that operate fleets with a cap on CO2 emissions or have implemented CO2 based company car policies could conceivably find that new cars inadvertently breach company or individual driver limits even though indicative CO2 values on the car quotes and orders were within limits.
Car lessees currently suffer from a lease rental restriction for cars with CO2 greater than 110g/km. This restriction means that only 85% of the lease rental is allowed as a corporation tax deduction. Higher NEDC correlated CO2 measurements could result in more cars suffering this restriction in the future.
Petrol car with CO2 based on NEDC 105 g/km
P11D value £18,000; monthly lease rental £300
Replacement like-for-like car with NEDC correlated CO2 116 g/km (10% higher)
P11D value £18,000; monthly lease rental 300
Comparison based on tax year 2018/19 assuming no changes to CO2 bands
|Driver or Company Impact||Original
|Driver benefit-in-kind on car||Driver||22% x 18,000
|24% x £18,000
|Driver benefit-in-kind on private fuel1||Driver||22% x 23,4002
|24% x 23,4002
|Income tax on car BIK @ 20%||Driver||£792||£864||+£72|
|Income tax on car BIK @ 40%||Driver||£1,584||£1,728||+£144|
|Income tax on fuel BIK @ 20%1||Driver||£1,029.60||£1,123.20||+£93.60|
|Income tax on fuel BIK @ 40%1||Driver||£2,059.20||£2,246.40||+£187.20|
|Class 1A national insurance on car BIK @ 13.8%||Company||13.8% x £3,960
|13.8% x £4,320
|Class 1A national insurance on fuel BIK @ 13.8%1||Company||13.8% x £5,148
|13.8% x £5,616
|VED first year rate||Company||£145||£165||+£20|
|VED standard rate||Company||£140||£140||–|
|Corporation Tax @ 19% saved due to lease cost||Company||£3,600 x 19%
|£3,600 x 85% x 19% =£581.40||
1 only applies if company provides fuel for driver’s private use 2 car fuel benefit charge multiplier for 2018/19