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Could a regulatory change raise your vehicle taxes by 30 per cent?

375371c4a663c99154809a959a757b81Both company car drivers and their employers could end up having to navigate a substantial financial minefield within the next two years if a new set of regulations are introduced.  Today, we’re going to explore both the potential changes and the impact they might have.

What is the change?

The change is set to alter the way in which vehicle emissions are tested.  Currently, new vehicles are tested under the New European Driving Cycle.  The planned change is to replace this with the new Worldwide Harmonized Light-duty Test Procedures (WLTP).

Why are the changes being tabled?

Many people believe that the figures provided by the NEDC system are not accurate enough. Indeed, several criticisms of the current process have already been voiced:

Such are the criticisms that the Society of Motor Manufacturers and Traders (SMMT) has already acknowledged the current systems’ failing.  Former chief executive Paul Everitt admitted that the figures were based on “an average, of an average of the worst possible average”.

What’s the alternative?

WLTP has already been given the green light by the United Nations Economics Commission for Europe (UNECE).  UNECE said:

“WLTP better simulates real driving conditions, with more modern and realistic driving scenarios and considers other widely used factors such as air conditioning and seat heaters that drive fuel consumption upwards.

“It also closes many of the loopholes that existed in the current test method in order to create accurate, consistent and repeatable results on fuel consumption which are thus more difficult to manipulate.”

It currently estimates that figures of fuel consumption under the WLTP would be around 10 per cent to 20 per cent higher than those under the previous systems.  The EU has also indicated its desire to replace NEDC with a more stringent procedure by 2017.

What could the impact be?

If the new regulations are brought in, the increase in car tax could be substantial.  Company car drivers and employers pay tax on their vehicle’s CO2 emissions, so if their vehicle is re-classified they could instantly be hit by a tax increase of up to 30 per cent.
Though existing models would not be re-tested, all new vehicles would be.  For instance, a firm that has consistently relied on a particular model for their fleet could be forced to make a choice between finding the extra cash to pay for the raise in tax, down-sizing to a different vehicle or simply choosing an alternately–fuelled car instead.

The change could also effectively create a two-tier tax regime in which employers pay significantly more in Class 1A NIC and VED.  As a result, employees would likely be forced into a much higher benefit-in-kind tax bracket if they chose to continue with the same car.  It’s entirely possible that companies might ditch company car provision altogether, or provide employees with a cash equivalent in lieu of the car.

Does anyone oppose the view?

The main criticism of the change has come from the motoring industry itself.  Indeed, a recent report in the Financial Times suggested that the European Automobile Manufacturers’ Association (ACEA) is currently lobbying for an implementation date of 2021 at the earliest.  The secretary general for the group, Erik Jonnaert, said:

“Looking at the scale of the task required, ACEA believes 2017 is incredibly ambitious.”
It’s believed that the new regulations could prove costly for manufacturers.  The EU has set a pan-European sales weighted average new car CO2 emissions target of 95g/km by 2020.  Those manufacturers missing the target face penalties of up to 95Euros per g/km of CO2 over the limits.  ACEA has recognised the potential problems that WLTP could pose for CO2-based taxes, saying:

“Managing the change to the WLTP must be addressed. This includes the labelling of vehicles, how to deal with old test cycle and WLTP CO2 and fuel consumption test figures without confusing customers, how to apply the WLTP for the purpose of the legal monitoring against a future CO2 fleet average figure, and how governments will ensure that any CO2-based taxation scheme fairly addresses vehicles between the periods when the old test cycle is phased-out and WLTP is brought in.”

This chart should provide you with information on the overall cost that the changes could have:

This post was brought to you in association with ASM Auto Recycling, experts in auto recycling.

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