From April 2020, a new method of measuring CO2 emissions for car benefit purposes is being phased in to link the tax cost of a company car with its environmental impact.

The new rules will affect any cars registered from 6 April 2020 when their CO2 emissions will be determined by the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). This will replace the existing method of calculating CO2 emissions,. The WLTP test is designed to reflect real world driving conditions and will, on average, increase the reported CO2 values and thus the tax costs for employer and employee.

To phase in the impact of the changes, the percentage used to calculate the benefit in kind determined by the emissions under WLTP will be reduced by 2% in 2020/21 and then 1% in 2021/22. This means that the full effect of any increase in the stated CO2 emissions figures on the benefit in kind will not take effect until 2022-23.

For  zero-emission vehicles, a new 0% rate will be introduced (even those zero emission cars registered before 6 April 2020) for 2020/21, which will increase to 2% by 2022-23.

All other company cars registered before 6 April 2020 will still be classified under the existing method. This means existing company cars will not be affected, but employers and employees should consider the impact of the new CO2 emissions test on future replacement vehicles.