Since 2002 several elements of UK motoring based tax legislation have been based on CO2 emissions. When the method of calculating CO2 changes this will change the amount of tax raised if the tax thresholds remain the same. Current legislation in place is based on the CO2 recorded on each car's Certificate of Conformity.
Income Tax (Earnings and Pensions) Act 2003 Part3, Chapter 6, Section 136 gives the basis on which the CO2 figure is calculated as:
"Car with a CO2 emissions figure: post-September 1999 registration
- This section applies to a car first registered on or after 1st October 1999 if it is so registered on the basis of
- an EU Certificate of conformity (see section 171(1)), or
- a UK approval certificate (see section 171(1)), which specifies a CO2 emissions figure in terms of grams per kilometre driven.
- The car's CO2 emissions figure is that specified figure unless more than one figure is specified, in which case the car's CO2 emissions figure is the figure specified as the CO2 emissions (combined) figure."
The CO2 figure will therefore depend on the test regime used at the time . During the transitional period some vehicles could be registered with a CO2 figure arrived at through the NEDC test, whereas a new model range registered in the same period would be based on a WLTP test. Taxation systems are blind to the method of testing and will happily work with either basis since tax is simply based on the CO2 figure from the certificate of conformity or approval certificate.
The Taxation Impact
Each CO2-based vehicle tax is analysed separately below. We can expect higher CO2 figures from WLTP when compared to NEDC testing on the same engine, but some taxes have few thresholds so don't expect a linear result.
- Company car tax has 25 thresholds in 5g/km bands in 2017/18 so any tightening will impact many vehicles. For instance a 6% tightening on a 99gm NEDC test result will push a car up from the 18% band to the 20% band and increase tax by 11%. However there would be no impact on a 76gm or 200gm (NEDC) car if the WLTP CO2 figures were to be 6% higher. See table of rates.
- Fuel benefit tax follows the same percentages as company car tax so will adjust to the same extent. Further Details on fuel benefit tax.
- Capital allowances have not yet been set in detail for 2017/18 but we can expect one or two CO2 thresholds below which companies can reclaim corporation tax more quickly on the purchase cost. Information on the current structure of capital allowances.
VED rates are currently based on 13 CO2 bands but will change in 2017 for new cars - see the 2017/18 rates for new cars. There are broader bands than company car tax on the First year rate so fewer vehicles will be affected. The standard rate becomes flat so is no longer CO2 based.
Owners of older cars cannot fall into a higher band because their CO2 is fixed at the time of registration. It is the cars registered before April 2017 under the transitional arrangements whereby new models are tested under WLTP that could face the heaviest impact if they are pushed into higher bandings than under NEDC.
- The VAT fuel scale charges are based on 5gmCO2 bands between 120 and 225g/km CO2 so businesses might be able to reclaim a little more VAT on WLTP tested vehicles. The impact will be small. Table of VAT rates on private fuel.
- London Congestion Charging is a form of local taxation. Currently vehicles which emit less than 76g/km of CO2 qualify for 100% discount. Whatever the threshold is in future, it will become harder for WLTP tested vehicles to get under the lower limit.