Tax and the VW car emissions scandal

By now everyone has heard how VW has ‘totally screwed up’ by rigging emissions tests on diesel vehicles.
This has caused them the massive pain of having to put the vehicles right. To date they have apparently recalled 1.2M diesel cars in the UK and also halted the sale of 4,000 diesel cars.

How VW are going to solve this problem is still something of a mystery but we do know that the solution is likely to lead to an increased level of CO2 emissions. This is where the tax bit comes in because any change in a car’s CO2 emissions will impact on the business use of cars:

  1. Capital allowance rates will drop by 10% for a vehicle with emissions over 130g/km.
  2. For company car drivers the taxable benefit of their car and its fuel is determined by emissions levels (here a 2% increase in emission levels could increase the annual tax charge by £800).
  3. Road tax is also affected by CO2 emissions.

Fortunately the government has announced that any affected drivers will be exempted from paying extra taxes due to VW’s behaviour. Watch this space for the inevitable next step whereby VW gets slapped with a massive fine – which will be much easier to collect!

HMRC has conceded that they would not have much power to retrospectively adjust tax assessments in any event. This is because the CO2 emissions are objectively based on the EC certificate of conformity or the UK approval certificate (even if it is wrong).

The position is less clear for future scenarios when the CO2 position will have been updated. If drivers are hit with higher tax after this time I expect that this will be incorporated into the various class actions that are being taken against VW (before we even consider the effect on the value of the cars).




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