Recent stories in the media about over-emitting diesel VWs raised questions about how these polluting vehicles are taxed when it comes to assessing benefits in kind. Are employees driving around in company VWs in peril of an extra tax charge?

The provision of an employer provided car that is available for private use by an employee gives rise to a benefit in kind charge. As such, the benefit will be subject to income tax (for the employee) and Class 1A National Insurance Contributions (NICs) for the employer.

The tax and NICs are based on a percentage of the official price of the car plus certain accessories, that percentage being primarily determined by the car’s CO2 emissions. The higher the CO2 emissions, the higher the tax charge.

Employees who enjoy the benefit of a VW car with now highly dubious CO2 emissions could well be worried about the level of taxable benefit they are likely to face in the future, and whether there could be a retrospective tax charge. Employers will be concerned about any extra Class 1A NICs they may have to pay as a result.

On top of that there is the worry that incorrect tax returns have been made to HM Revenue & Customs.

Well the good news is that employers and employees can set their minds at rest; there will be no additional tax charge.

The level of CO2 emissions are set by the approval certificate relevant to the car model, rather than the actual level of emission. So even though the emissions may now be shown to be excessive, there will be no further tax to pay.

In addition, following VW’s admission of using ‘defeat devices’ in diesel cars, the government has stated that UK taxpayers will not incur higher Vehicle Excise Duty if their existing vehicles are found to be fitted with illegal software that manipulates emissions tests.

However, as all new VW models are now likely to be re-tested, we can perhaps expect to see a higher tax charge on the horizon.

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