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Budget 2016: CO2-based company car tax confirmed until at least 2020/21

Date: 16 March 2016   |   Author:

The chancellor confirmed in his Budget statement that the current CO2-based company car tax regime will continue for another year further than had previously been announced, although he didn't give any indication of what will happen to the bands within the current emissions-based system.

"From 2020-21, the Government will continue to base company car tax on the CO2 emissions of cars and will consult on the reform of the bands for ultra-low emission vehicles (below 75g/km of carbon dioxide per kilometre) to refocus incentives on the cleanest cars", read the Budget statement.

Given the changes to capital allowance rates on business cars, it would be sensible to assume the Government's definition of ultra-low emission vehicles could drop to 50g/km after the consultation.

The rates for every tax year up to and including 2019/20 have been set out, with most bands rising by two percentage points per year until 2019/20, where a three percentage point increase is set. At that point the maximum 37% band will apply to cars of 165g/km or above, while at the other end, cars of 50g/km or below will be subject to a 16% rate, compared with 5% for the tax year about to draw to a close.

The chancellor also confirmed that the 3% differential between petrol and diesel cars, re-installed in the 2015 Autumn Statement, will remain in place until at least April 2021.