January 28, 2019

WLTP: Impacts on Company Car Taxation

WLTP in Context

The Worldwide harmonized Light vehicles Test Procedure (WLTP) regime is in motion. The assumption is that WLTP should far better represent everyday driving profiles and, hence, elicit more accurate CO₂ values.

This is backed by the UK Government, which contends that the WLTP will help reduce the current gap of around 40% that exists between the former lab-generated New European Driving Cycle (NEDC) results and actual emissions.

This test should result in a higher g/km CO₂ value for a given vehicle compared to the former NEDC regime, simply because the WLTP is far more rigorous than the former test.

WLTP and Company Car Tax

The UK Government announced in its 2017 Autumn Budget that cars registered from April 2020 would be taxed based on CO₂ emissions data as per the new WLTP. Cars registered before April 2020 will maintain their current tax treatment.

WLTP testing has been required for new car registrations since September 2018. However, VED and company car tax will continue to be paid based upon converted NEDC figures until April 2020.

It’s worth noting that, whilst the Government announced that new vans registered as of April 2021 will be liable to pay VED based on CO₂, WLTP-related taxation impacts on vans will be considered separately. Furthermore, WLTP testing for heavier vans will only become mandatory for new registrations from September 2019.

The Government stated that the new tax regime was necessary in order to strike a balance between protecting fleets from increased costs, whilst ensuring that the UK can meet its international climate change and air quality commitments.

Furthermore, the Government will continue to offer incentives that favour zero and ultra-low emission vehicles (ULEVs).

A Consultative Process

The fleet industry has been asked to comment about whether (and what) vehicle tax changes are required once WLTP is adopted for tax purposes from the April 2020 commencement period. Other policies linked to CO₂ emissions, such as capital allowances, would not be considered in this consultative review process.

You can view the consultation document here and find out how to submit your response.

In its consultation document, the Government is adamant that strong fiscal and environmental signals have been issued to consumers and businesses. It emphases the need to raise revenue, whilst supporting the uptake of cars with low CO₂ emissions.

The timetable is tight.  Any suggested changes to this proposed tax regime must be introduced into the Finance Bill for 2019-20. This provides only limited time for the needed technical consultation (as with the fleet industry) and the subsequent drafting of legislation.

The consultative process will close on Sunday, February 17th, 2019, after which the Government is expected to outline its response in the spring of 2019.

Reservations by the Fleet Car Industry

Increased costs

The immediate response by the fleet industry was concern that more than 50% of cars would be affected by the new taxation scheme. Also, there would be an estimated increase of between 10% and 20% for vehicles due to the new WLTP testing regime, when compared to the former emissions testing regime, the NEDC.

There is the possibility that fleets could suffer additional costs of several hundred pounds per vehicle per year due to the WLTP, if vehicle selections by fleet managers for said fleets are not adequately thought out now.

Early sales data

In new car finance data for the three months to the end of October 2018, from the Finance and Leasing Association (FLA), the volume of new car finance agreements declined by 7% to 246,085 as the value of advances declined by 5% to £4.982bn.

The decline was even sharper for new cars financed for fleets. This was down by 33% to 29,680 in October alone, with a decline of 22% (to 88,080) for the indicated period, according to the FLA. The expectation is that these figures will plateau and then improve as the market adjusts to the new WLTP reality.

Issues with CO2MPAS

There have been problems with the EU’s computer simulation tool, known as CO2MPAS, when used to convert WLTP figures back to an equivalent NEDC figure. The fleet industry claims that fleets have already incurred increased costs due to problems with these converted figures.

Yet, HMRC has stated that the review period will not consider the implications of using the EU’s CO2MPAS tool.

Government’s Stance

The UK Government believes that the fundamental structure of the VED and company car tax system is appropriate. This includes variables such as the diesel supplement and a timeframe for the introduction of future company car tax rates.

Tellingly for the Government’s 2018 Budget, the Office for Budget Responsibility (OBR) forecasts an increase in Exchequer revenue due to the adjustment of VED and company car tax as projected from April 2020.  It’s anticipated that VED receipts should increase by around £200 million a year on average from 2020-21 onwards.

The Office also predicts that company car tax receipts due to income tax and National Insurance contributions should increase by £100 million in 2020-21, rising to £400 million in 2023-24.

The OBR further projected that, as a proportion of total revenue the impact of WLTP is greatest for company car tax since the stock of fleet cars is much newer when compared to privately owned cars. Of the approximately 1 million fleet cars on UK roads around 25% are newly registered each year, compared to just 8% of all vehicles.

That’s why over 90% of company cars are forecast to be WLTP-tested by 2023-24, with resultant impacts on reported CO₂ emissions and company car tax revenues.

Furthermore, the average company car tax liability is higher than for VED with fleet car drivers being liable to pay tax based on CO₂ emissions every year, rather than only with the registration of a new car.

Also, CO₂ bands in the UKs company car taxation system are spaced closely together and are therefore more sensitive to changes in reported CO₂  emissions. However, this is capped at a maximum appropriate percentage of 37%.


The UK Government is of the opinion that the fundamental structure of the proposed VED and company car tax regime is correct, viable and sound. Therefore, any changes needed to the vehicle tax system will only be by means of what the Government calls a “simple” adjustment, such as a change in rates.

The consultation deadline looms and the Government is clearly intent on a WLTP-focused taxation regime for company cars. As such, the fleet industry must make every effort to ensure that its concerns and proposals are taken into due consideration.