A new regime of vehicle testing has begun, and it could have big implications for the taxes paid by fleets and their drivers.
The Worldwide Harmonised Light Vehicle Test Procedure
Back in 2009, the United Nations’ World Forum for Harmonization of Vehicle Regulations set about developing a new test to replace the New European Driving Cycle (NEDC), which was introduced in 1992 and last updated in 1997. The aim was to more accurately measure the carbon dioxide (CO2) emissions and fuel efficiency of new vehicles.
This new test – the Worldwide Harmonised Light Vehicle Test Procedure (or WLTP for short) – came into force for all new car types on 1 September 2017. All newly registered vehicles, including those whose types were approved under the old NEDC regime, will have to undergo WLTP tests from 1 September 2018.
The WLTP takes place in the laboratory, as did the NEDC, but it has been designed to be more representative of real-world driving. It is longer than the old tests, lasting 30 minutes instead of 20 and covering 14.4 miles instead of 6.8. The car is driven faster, with an average speed of 29mph (compared to the NEDC’s 21mph) and a top speed of 81mph (compared to the NEDC’s 75mph). The tests feature more realistic driving behaviour – such as more rapid acceleration and more sudden braking – across a wider range of road types. And the WLTP takes into account the effects of optional equipment on both emissions and fuel efficiency.
The effects of WLTP
One of the most visible effects of the WLTP will be to improve the information available to customers when looking for a new car. The CO2 emission and fuel efficiency figures advertised will more closely reflect a car’s actual performance on the road, enabling consumers to make a more informed choice. There is a risk of some confusion initially, however, as some cars will have figures from NEDC tests displayed, while others will have their WLTP results shown.
The WLTP’s more substantial impact, though, will be on Company Car Tax (CCT), Vehicle Excise Duty (VED) and tax relief for business vehicles. All of these depend on a car’s CO2 emissions – so a change to the way CO2 emissions are measured will change the amount of tax that fleets and drivers have to pay.
The transitional period from NEDC to WLTP
At Autumn Budget 2017, the Government announced that it will continue to use NEDC figures for the purposes of calculating CCT and VED until April 2020, at which point it will switch to WLTP figures.
However, new models between now and then will undergo the WLTP but not the NEDC. They will therefore have their WLTP results converted to NEDC-equivalent figures for tax purposes, using a simulation model called ‘CO2MPAS’. The NEDC-equivalent figures generated by CO2MPAS may be slightly different to those obtained for the same model in actual NEDC tests, though.
How WLTP will affect Company Car Tax and Vehicle Excise Duty
When the official CO2 emissions figure for a particular car changes – first to NEDC-equivalent and then to WLTP – that will affect the amount of CCT and VED due on that car, as well as the amount of tax relief that a business can claim on it.
Both CCT and first-year VED rates are based on a car’s CO2 emissions, with the cleanest cars paying the least and the most polluting ones paying the most. If a car’s official CO2 emissions are higher under the new system than under the old one, it may find itself facing higher rates of both CCT and first-year VED.
How WLTP will affect Corporation Tax relief
In addition, the amount of tax relief that a business can claim on the cars it buys depends on their emissions. Cars that emit 50g CO2/km or less are eligible for a 100% first-year allowance; those with emissions between 50 and 110g CO2/km are eligible for the 18% main rate of tax relief; and those with emissions over 110g CO2/km are only eligible for the 8% ‘special rate’. The changes to the way a vehicle’s emissions are calculated may move some cars from just below one of these thresholds to just above it.
Similarly, the amount of tax relief available for leased cars also depends on their emissions. For Corporation Tax purposes, a business can deduct 100% of the cost of leasing any cars with emissions of 110g CO2/km or less. Cars with emissions above that threshold are subject to a 15% ‘lease rental restriction’, meaning that only 85% of the leasing costs can be deducted. Again, the move from NEDC to NEDC-equivalent and then to WLTP figures may make some cars subject to the lease rental restriction that weren’t before.
Find out how WLTP will affect you
Every fleet has its own unique profile, and that profile will determine exactly what impact the introduction of WLTP tests will have. Some fleets will hardly notice any change, while others may face a significant tax increase if they do not take steps to adapt.
Hitachi Capital Vehicle Solutions’ fleet consultants work closely with fleets to help them understand how the WLTP will affect them, and to identify any changes that they should make to their fleet policies.
If you would like to find out how the team can help you, please use the form below to get in touch.