New correlated CO2 values push company cars into higher tax bracket

By Simon Harris
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18 June 2018

Fleet operators and company car drivers face increases in tax after CO2 emission values generated under WLTP (Worldwide Harmonised Light Vehicle Test Procedure) start to be published.

All cars are undergoing a transition to the new measurement for fuel consumption, with newly type approved models subject to the test since last September, while all other new cars are being rehomologated by this September.

The changes will only apply to vehicles registered after the new figures are published, where the higher CO2 value is shown on the registration document.

WLTP has replaced NEDC (New European Drive Cycle), which had been criticised for failing to represent real-world fuel consumption. NEDC had been in use since the early 1990s.

WLTP, in its true form, will come into circulation this autumn, but its CO2 figures are not scheduled to be linked to vehicle tax until April 2020. Confirmation is expected in November’s Budget.

Until then, every car that undergoes the test has a new ‘NEDC-correlated’ value, using a tool called CO2MPAS, which was formulated to create a figure close to the old NEDC figure.

But research by Cap HPI has found that the figures are typically 10% higher under NEDC-correlated values, effectively pushing up the benefit-in-kind (BIK) tax bands by several percentage points.

For drivers changing their company cars this year, it is likely to mean a significant increase in BIK tax liability, and fleet operators are calling for an explanation of why car CO2 emissions have increased substantially under the new rules.

Caroline Sandall, deputy chairman of fleet representative body ACFO, said: “I think many members are concerned that the WLTP/NEDC correlation has resulted in the same vehicle coming out of the matrix with a much higher CO2 value than under the previous NEDC calculations.

“This was not expected and many cannot understand why there would be such a variance – the expectation was, quite rightly, that the
correlation would return a result very close to the old NEDC calculation.

“Unfortunately this leaves fleets with few options as the future is unknown until Government makes a decision about how we will migrate to WLTP as the measure for BIK.

“In the meantime, I do think someone needs to explain why there is such a variance between NEDC and NEDC-correlated figures. The whole thing has been badly managed and implemented.”

Car manufacturers are also reportedly unhappy with the new system, which makes a similar vehicle in 2018 potentially much less attractive for a company car driver.

But the Society of Motor Manufacturers and Traders (SMMT) says it is working with the European Commission alongside other EU car industry associations to urgently update CO2MPAS.

Mike Hawes, SMMT chief executive, said: “WLTP and RDE (Real Driving Emissions) are the world’s toughest-ever emissions tests, much more representative of on-road driving than NEDC which, as the industry acknowledged, was outdated and needed reform.

“The CO2MPAS tool represents a short-term solution to evaluate the performance of new vehicles tested under WLTP on a comparable basis to existing NEDC vehicles, and so align measures such as tax rates.”

Asked if an update to the system would mean vehicles having to undergo new tests to create new CO2 emissions figures, the SMMT said it was a matter for the European Commission.

The British Vehicle Rental and Leasing Association (BVRLA) told Fleet News it is in discussions with the Treasury and will be asking for any distortion caused by the transition to the new regime to be eliminated.

“Policymakers need to recognise the vital role played by the company car sector and rebalance the BIK tax thresholds to ensure drivers are not hit by unfair and disproportionate rate increases,” said a spokesman.

The study of more than 600 models by Cap HPI, across all vehicle sectors, examined emissions data between September 2017 and May 25, 2018. The data shows diesel vehicles increased by 12.6%, petrol 7.3%, petrol plug-in hybrid by 27.3% and petrol hybrid 7.8% on average.

Andrew Mee, senior forecasting editor at Cap HPI, said: “The industry is already seeing the impact of WLTP as some models are removed from the market and options are rationalised. While we expect to see the fleet mix change over the coming months with drivers shifting away from models with large CO2 and BIK increases, we don’t expect to see a significant spike in overall sales ahead of WLTP changes in September.”

During the past decade, manufacturers have become more skilled at optimising vehicles for NEDC tests, adding features like idling stop/start, reducing vehicle weight with new generation models as well as making improvements to aero-dynamics. Drivers choosing their next company cars carefully have been protected from big increases in BIK through vehicle improvements.

The Vauxhall Insignia Fleet News currently has on its test fleet is a 136PS diesel and has CO2 emissions of 114g/km. But the same car registered now has CO2 emissions of 124g/km – an increase of two BIK tax bands.

Costs have increased significantly since this car was delivered last summer, including the annual tightening of the BIK tax threshold, and the increase in the supplement for diesel cars, which went up to 4% in April from 3%, putting this Insignia in the 29% bracket for BIK tax compared with the 24% bracket for an identical model in 2017/18 registered a year ago.

Drivers will now pay £80 per year (20% taxpayer) more, while businesses will have to contribute an extra £105 per year in National Insurance Contributions (NICs).

For some models, this level of increase has come purely as a consequence of changing from pre-WLTP to post WLTP. For example, the Mercedes-Benz E 220d saloon AMG Line that Fleet News also has on test has increased by three BIK tax bands since delivery, with CO2 emission rising from 112g/km to 127g/km.

This rise will hit a 40% taxpayer by £478 per year, with a business paying £165 extra in NICs.

It had been possible to choose a Toyota Prius with CO2 emissions of 70g/km when specified with 15-inch wheels, which entitled the car to be registered for the London congestion charge discount.

The lowest CO2 emissions possible with the standard under the revised system is 78g/km, which would not only make it subject to the congestion charge, it takes it above the threshold for a 100% write down allowance.

These factors could make the difference in whether or not a car remains on a fleet choice list.

A number of popular fleet models now exceed the commonly applied 130g/km CO2 cap. These include certain derivatives of the Ford Mondeo, Vauxhall Astra, Jaguar XE and XF, and Mazda 6.

Some of the changes to fuel consumption and CO2 emissions have been introduced at the same time as model year updates, which has also seen P11D prices increase.

ACFO chairman John Pryor added that the changes could now cause more people to give up their company cars and take a cash allowance instead, which risks a reduction in the revenue the Government takes from company car tax.

He said: “I suspect the issue is there is no clear way to go forward. But this is a sword of Damocles hanging over all current and future sales. As always, drivers do not look at the whole picture as we see people cashing out and claiming AMAP (approved mileage allowance payments) or the tax differences.”

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Author: Simon Harris

Comments (3)

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Comments

The Engineer - 18/06/2018 12:06

Meanwhile what am I supposed to do? I am being told to order something but half the cars I was interested in have disappeared off the quoting system for who knows how long, presumably undergoing reevaluation, One has returned but has jumped 20%, 5 BIK levels overnight, even something that looks stable now could be retested any time and soar in tax by the time its delivered. Would the lease company let me cancel and start again if that happened? I doubt it, stuck with it! I think we now know in part how the government are going to fund their massive new NHS funding pledges, backdoor tax rises like this!!!
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- Sage & Onion - 18/06/2018 14:35
  
  You might not be wrong about how they intend to fund the NHS pledge! I've put everything on hold until the autumn statement when hopefully we will have some clarity on the future. And I reckon the Chancellor has deliberately withheld the future BIK tax matrix until WLTP tells him how much revenue he will get from company cars. But I do think he has also got to offer concessions too because if BIK continues to rise then cash offerings and loss of control of co2 will ensue, and the fleet sales industry will suffer.
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  - The Engineer - 18/06/2018 17:13
    
    I agree. what they don't appreciate is that a car is an absolute essential tool for people like us, without one my job, and my company doesn't exist. Year on year the tax burden goes up, eroding my income quicker than I am gaining rises. Yet is the 'benefit' of the car getting any greater to me in exchange for my rapidly rising tax contribution? no it is not. It is still just a car that 90% of the time is working and now and then I go to the shops in it 'privately' - same as I always have. Its really unfair. I have no choice car & job or no car & no job so they can milk me blind. Its often tempting just to give up and take early...
    
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- Rosco7010 - 19/06/2018 08:43
  
  I actually don't think the Treasury see it in the way you describe. They are seeing the increasing BIK they are collecting, but they are ignorant to the negative effects on individuals, company's or the new car industry in the UK. They believe companies have the option to choose lower CO2 vehicles to offset the increasing BIK. But because they haven't consulted with the industry, they simply don't know or care, that this is impossible. Also the 4% levy for non RDE2 compliant diesels is a ridiculous decision when RDE2 compliant vehicles are not available. So they incentivise an employee to choose a vehicle that doesn't exist! But I think they are more foolish than deliberately making a tax grab.
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Rosco7010 - 19/06/2018 08:27

The Treasury is well aware of all these issues, but currently only sees the increased revenue as a benefit to them. They can use the inaccurate media reporting of diesel as a lever to justify increased company car tax BIK. What the treasury is ignorant about is the effect of these changes on new car sales? The number of drivers with an option for a cash allowance, returning the company car is unprecedented in my long career in this industry. Unfortunately the treasury will only take notice when company car tax receipts drop, and by then it will be tool late. For those fortunate to be 40% tax payers, the break even mileage to have a company car over a cash allowance has significantly lowered. In one example I saw, it was 12,500 miles per year. But more likely it averages at about 15k miles per year. In all likelihood, we are seeing the end of the company car as a benefit within 5 years. In response to "The Engineer", I have a lot of sympathy with your plight, and it is likely your fleet manager has no answers, there are very few practical alternative vehicles for you. A Toyota Prius or Auris Hybrid will lower your BIK significantly. But if you do a high proportion of motorway mileage the fuel cost could go up. And obviously the traditional Engineer estate car low CO2 options are practically zero now. And if you desire an SUV for the better driving position, I doubt your budget will accommodate one. I suggest a letter to your local MP, I have done the same, only if they get significant complaints will the treasury be forced to act. In the meantime, the new car sales industry in the UK is facing a real problem. New car sales declining rapidly, and the treasury is not accepting that it is part of the problem. Private buyers with high mileages are deferring purchasing decisions and holding onto their current car, because they have no indication of future RV's. Fleets are stuck in having to replace vehicles. But lease costs of diesels are going up quickly because of RV predictions. Yet the petrol, hybrid and EV options are not cost effective, or sometime practical for many fleets.
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- The Engineer - 19/06/2018 11:19
  
  Thank you Rosco7010, even as a high mileage driver I have managed to make a PHEV work for me by careful driving I can more or less break even on the AFR I get. But even the PHEV has risen from 5% to 13% BIK during its lease, where the government think I am going to get the extra money from I don't know. As you say, there are no answers when the lowest band, very cheapest BIK option possible is ramped up over and over, there is nowhere else left to go to cutback your costs. I didn't think cash taking was the answer either? don't the revenue now look at the car run on an allowance as if a company car and hit you for BIK if greater than your current tax rate on the cash? So they 'gotcha' either way. They pushed their luck too far with private fuel benefit until no one has taken it for years so they lost all the revenue from it. This could go the same way eventually, people will take company vehicles for business use only and run their own vehicle privately so they will lose all BIK revenue.
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  - Rosco7010 - 20/06/2018 10:03
    
    What you refer to in respect of cash vs car is the OpRA calculation. So you are taxed on the higher of the amounts, either the cash equivalent or the BiK on the company car. What that means is there is no incentive on a driver to choose a low CO2 company car, the driver just sees the tax they would pay on the allowance as a self imposed cap. Some companies have changed their employees contracts, so if you choose a company car, you get a contract with no cash option. If you choose cash, then you get a contract with no car option. Then the HMRC can't impose the OpRA rules. It was poorly thought through tax legislation, that was aimed at removing a loophole that basically doesn't exist, at least not for normal people driving normal cars. Baby and bathwater springs to mind. ULEV cars like most PHEV vehicles currently are classifed as will be taxed at 16% of P11D price. So be careful. PHEV's have higher P11D prices, and you may not get the tax savings you would expect. Those with CO2 from 51-75g/km, may see 19%. Once you go over 75g/km its basically not worth it. At the 2020/21 tax year. PHEV's are graded on electric only miles, but they need to have CO2 emissions below 50g/km. Again, that will negate the benefit for these types of vehicles. Many in our industry have told the treasury and we know they are aware of these problems and the consequences. In the main Fleets support WLTP, and improved accuracy. But we really object to punishing people who made decisions under the governments previous guidance. My suggestion is a letter to your MP, highlighting your examples. He/She should consult with the treasury (you will never get a direct conversation with them). I expect the answer to be vague and irrelevant. But if enough people make noise the treasury will have to sit up and take notice.
    
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Nigel Boyle - 25/06/2018 11:49

The issue is that the Government is not playing ball. The EU have dictated that any CO2 increases due to WLTP should not cost the consumer any more tax- it is the same vehicle with the same outputs. In their document they say that member states must adjust their taxation model so no more tax is paid. The Government has not done this so far, can everyone lobby for the Autumn Statement as so far they are in breach of EU guidelines. The CO2MPASS system is wrong as the conversion does not return the vehicle to the pre WLTP CO2 numbers and therefor tax, an adjustment is needed for this to correct the situation. Please can everyone shout as no mare tax until 2020 is the EU guideline. By then manufacturers will be producing low CO2 vehicles to compab the tax, rather than us have to buy petrol with a few miles of electric to trick the taxation models while costing so much more in fuel.
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- Rosco7010 - 26/06/2018 11:14
  
  Nigel - Could you give the link to where the EU have said any CO2 increases under WLTP should not cost the consumer more tax. It would be useful to be able to call the government up on that as you suggest, and show the current company car tax policy isn't compliant. And I agree with your comment on PHEV's. For anything other than low mileage scenarios they are costly. The proposed 2020/21 changes to have a EV range feed into the calculation for PHEV's below 50g/km is a positive one from the government. But its not been announced yet, simply a draft.
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