Income Tax changes – Van benefit charge from 6 April 2021

From 6th April 2021, the cash equivalent of the van benefit charge for zero emission vans is nil.

The government announced its intention to introduce this policy change at Budget 2020 as part of ‘Road to Zero’ targets. It will apply only to vans which cannot emit any CO2 when being driven..

This change supports the uptake of less polluting goods vehicles by reducing the level of the tax charge. It also supports the government’s objectives on decarbonisation and air quality initiatives.

Transport is now the largest sector for domestic UK greenhouse gas emissions and a significant proportion of this is accounted for by road transport.

Current law

Section 154 of the Income Tax (Pensions and Earnings) Act 2003 (ITEPA) provides for a van benefit charge. The charge applies when a van is made available to an employee by reason of the employee’s employment and is also made available for private use unless it meets the conditions of restricted private use, such as substantially ordinary commuting. The benefit of the van is treated as earnings from the employment. The benefit is subject to income tax on the employee and Class 1A National Insurance contributions on the employer.

If the employee is liable for the charge, it is normally applied as a standard flat rate value. The charge is not dependent on the value of the van or the proportion of private use within the period it has been made available, the conditions for restricted private use have not been met.

Draft legislation

Details of the clauses

  • Subsection 1 introduces amendments to section 155 ITEPA.
  • Subsection 2 amends subsection (1B)(a) and inserts new paragraph (aa), which provides that the cash equivalent of the benefit of vans which cannot emit CO2 under any circumstances when being driven is nil in the tax year 2021-22 and subsequent tax years.
  • Subsection 3 removes subsection (1C)(g) as it becomes otiose following the amendments set out above.
  • Subsection 4 makes consequential amendments to the order-making powers contained in section 170(1A) which allow the cash equivalent of the benefit for zero emission vans to be increased by secondary legislation for future specified tax years.

PAYadvice.UK 31/7/2020

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