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VW scandal: Accountants warn over company car emissions

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Car manufacturer Volkswagen’s manipulation of diesel emissions tests in the US and Europe could potentially impact UK cars and have a knock-on effect on the taxation of company car benefits, accountants have warned.

Caroline Le Jeune (Blick Rothenberg) said: ‘Company car benefits are calculated based on the list price and the approved CO2 emissions of the car, plus a 3% supplement for diesel cars. For any VW cars, this may well increase pending any revised CO2 emissions figures as a result of the upcoming investigations by US and German authorities. For UK-based employees with company cars, the taxable value of the benefit as shown on the employee’s P11D is likely to have been incorrect. Whilst there is no expectation of HMRC taking retrospective action in these highly peculiar circumstances, no official comment has been made. Going forward, company car benefits are likely to need to be recomputed using the updated CO2 emissions figures, which will lead to higher taxable benefits for employees.’

Volkswagen has now admitted that nearly 1.2m of its vehicles sold in the UK have been fitted with software that cheated emissions tests, allowing them to advertise ‘green’ vehicles with much lower emissions than would be achievable in normal driving conditions. At this stage it is unclear whether the software not only lowered nitrogen oxide emissions, but also CO2 emissions. Baker Tilly says if it is found to be the latter, then HMRC will likely be the latest loser in the ongoing case as vehicle duty and tax on benefits-in-kind (BIKs) are based upon a vehicle’s CO2 emissions.

Bill Longe (Baker Tilly) said: ‘Diesel cars attract a higher BIK tax than the petrol versions, and the government had been planning to remove the differential next year – presumably because it was convinced levels of damaging nitrogen oxide emissions had improved and were no longer regarded any more dirty than their petrol cousins. The evidence of cheating on the emissions tests now calls into question whether that reduction in BIK tax should be introduced and, if it does end up being scrapped, then drivers of these vehicles have every right to be aggrieved.

‘If it is eventually proven that the VW software did lower CO2 ratings, then HMRC – and ultimately UK taxpayers - will feel quite rightfully cheated out of much-needed revenue. The situation is changing by the day, and I expect that the taxman will be watching this case develop with keen interest over the next few weeks.’