Section 58: Zero and Low Emission Vehicles
Summary
1.Income tax on the chargeable benefit for a company car made available for private use is calculated on the list price of the car multiplied by the appropriate percentage (normally based on the CO2 engine emissions of the vehicle). Income tax on the chargeable benefit for a company van made available for private use is based on an annual flat-rate charge – the “cash equivalent”. Section 58 makes the necessary amendments to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) required to allow company cars and vans which cannot produce CO2 emissions under any circumstances when driven to qualify for an appropriate percentage of 0 per cent in the case of a car and for a cash equivalent of nil in the case of a van. It also introduces a reduced appropriate percentage of 5 per cent in the case of a car with approved CO2 engine emissions of exactly 75 grams per kilometre or less.
2.The special percentage of 0 per cent for cars will apply for the tax years 2010-11 to 2014-15, and will revert to the 9 per cent currently applicable to electric cars for the tax year 2015-16 onwards. The nil cash equivalent for vans will apply for the tax years 2010-11 to 2014-15, following which it will revert to £3,000.
3.The reduced percentage of 5 per cent for ultra low emission cars will apply for the tax years 2010-11 to 2014-15, and will revert to 10 per cent for the tax year 2015-16 onwards.
Details of the Section
4.Subsections (1), (2) and (7) set out which parts of the legislation are most affected by the amendments.
5.Subsection (3) substitutes a new subsection (1A) to section 139 of ITEPA which sets out the definition of a “qualifying low emissions car”.
6.Subsection (4) amends current section 139(1B) of ITEPA to provide for an appropriate percentage of 5 per cent where a car’s CO2 emissions do not exceed 75 grams per kilometre.
7.Subsection (5) amends current section 139(5) of ITEPA with the effect that the rounding mechanism, used where the level of the CO2 emissions is not a multiple of 5, only applies to cars which are not qualifying low emissions cars and have not exceeded the level at which the appropriate percentage of 35 per cent is set. As a result, section 139(5A) of ITEPA is no longer needed, and this is removed by subsection (6).
8.Subsection (8) amends section 140(3) of ITEPA to provide for the special percentage for all cars which cannot produce CO2 emissions under any circumstances when being driven.
9.Subsection (9) inserts a new section 140(3A) in ITEPA which sets out the level of the special percentage for the tax years 2010-11 to 2014-15 and for the tax year 2015-16 and subsequent years. The definition of electrically propelled vehicle is no longer required and is removed by subsection (10).
10.Subsection (11) amends section 149(4) of ITEPA so that no car fuel benefit charge applies where energy is supplied for a car which cannot produce CO2 emissions under any circumstances when being driven.
11.Subsection (12) replaces subsections (1) to (3) of section 155 of ITEPA in respect of vans with new subsections (1) and (2).
12.New section 155(1) provides for the nil cash equivalent and new section 155(2) sets out the circumstances where the cash equivalent applies.
13.Subsections (13), (14) and (15) provide for consequential amendments to sections 156(1), 158(1), 160 and 170(1A) of ITEPA as a result of amending section 155. Subsection (16) is a further consequential amendment which omits paragraph 7 of section 59 of the Finance Act (FA) 2006.
14.Subsection (17) omits paragraph 7 of Schedule 28 to FA 2009 which set a new appropriate percentage for company cars wholly electrically propelled with effect from the tax year 2011-12. This is superseded by this sectionand so is no longer required.
15.Subsections (18) and (19) provide for the dates from which the amendments made by subsections (2) to (16) and subsection (17) are to have effect.
16.Subsection (20) provides for the amendment of section 142 of ITEPA made by paragraph 8 of Schedule 28 to FA 2009 for cars first registered before 1 January 1998 to be effective from the tax year 2010-11 and onwards, one year earlier than provided for in that Act.
Background Note
17.The Government has introduced a new initiative to encourage the take-up of the most environmentally friendly and least polluting vehicles by company car and van fleets by introducing a nil taxable benefit for cars and vans which are incapable of producing CO2 emissions under any circumstances when being driven.
18.The Government has also undertaken to provide a further initiative for ultra low emission company cars – that is, those with an approved CO2 emissions figure of 75 grams per kilometre or less.
19.Together, these measures recognise and encourage advances in technologies underpinning the future development of both zero-emission and ultra low emission vehicles.
20.The appropriate percentage for zero-emission company cars will be set at 0 per cent for the tax years 2010-11 to 2014-15. The level of the cash equivalent for zero-emissions company vans will be set at nil for the same period.
21.The appropriate percentage for ultra low emission cars will be set at 5 per cent for the tax years 2010-11 to 2014-15.