The government plans to reduce most company car tax rates by 2% in 2020-21 for cars registered from 6 April 2020.

Rates will return to planned levels over the following two years, increasing by 1% in 2021-22 and 1% in 2022-23. Rates will then be frozen until 2024-25.

To help reduce carbon dioxide emissions the government has announced a tax benefit for

The tax cut will only affect cars measured under the new Worldwide harmonised Light Vehicle Test Procedure (WLTP) which is the new emissions measurement standard.

The measure includes changes to the appropriate percentage figures for all cars classified as being zero emission vehicles (ZEV) under both the existing European standard, New European Driving Cycle (NEDC) and WLTP test procedures.

There are currently around one million company car drivers. This measure will affect employees provided with a car made available for private use by their employer.

Those individuals who have to report the benefit through their annual self assessment tax return will have to ensure that the correct level of CO2 emissions is reported.

Budget 2020: CO2 emission thresholds for capital allowances

Adjustments will be made to the CO2 emission thresholds for capital allowances for business cars by extending first year allowances to zero emission vehicles.

The upper threshold for the main writing down allowance rate will be reduced to 50 grams per kilometre (g/km), while the 100% first year allowance for company cars will be extended, with the threshold reduced to 0g/km.

The government is aiming to bring forward the phase out of new petrol and diesel cars and vans by five years from 2040 to 2035 or earlier if a faster transition is feasible, and the wider policy on climate change to reduce all greenhouse gas emissions from the UK to net zero by 2050.

The existing first year allowances for zero-emission good vehicles and equipment for gas refuelling stations will be extended to April 2025.

The measure also reduces the carbon dioxide emission thresholds which are used to determine the rate of capital allowances available for company cars. This will also reduce the threshold for the lease rental restriction.

Figures from the Treasury suggest that this tax relief will cost the government £5m in 2021-22, but will start to raise revenue from 2023 by £165m over the next five years.

To support the uptake of zero emission vehicles (ZEVs) and ultra-low emission vehicles (ULEVs), from April 2021, the government will extend first year allowances to ZEVs only and apply the main rate writing down allowance (WDA) of 18% to cars with emissions up to 50g/km.

The special rate WDA of 6% will apply to higher polluting cars with emissions above 50g/km. First year allowances for zero emission goods vehicles and natural gas and hydrogen refuelling equipment will also be extended.

This measure extends the period when the 100% first year (capital) allowances are available for this expenditure from April 2021 to April 2025.

Budget 2020: van and car benefit charges

The government will increase fuel benefit charges for cars and vans in line with CPI from 6 April 2020

The flat-rate van benefit charge will increase to £3,490, the multiplier for the car fuel benefit multiplier will increase to £24,500, and the flat-rate van fuel benefit charge will increase to £666.

The flat-rate van benefit charge from the last Budget in 2018 was £3,430, the multiplier for the car fuel benefit charge was £24,100, and the flat-rate van fuel benefit charge was £655.

This change will affect individuals who use company cars and vans for private driving or claim fuel for private mileage.

Employers will need to change payroll systems and update tax codes where appropriate, in advance of the 2020-21 tax year.

From April 2021, the government will also apply a nil rate of tax to zero-emission vans within van benefit charge. This measure will save businesses an estimated £433 per van in tax in 2021-22.