Youngtimer Scheme
The Government is phasing out the ‘youngtimer’ scheme more gradually, so that car dealerships and business owners are less suddenly affected by rising costs. This age limit will rise from 16 to 17 years in 2027. From 2028, the youngtimer scheme will only apply to any car once it has exceeded the age limit of 20 years. This will therefore result in the youngtimer scheme no longer applying to cars that, in 2027, have exceeded the age limit of 17, 18 or 19 years, but have not yet reached the age limit of 20 years. The previous plan to raise the age limit for cars under the ‘youngtimer’ scheme to 25 years has been scrapped.
Temporary reduction in motor vehicle tax for vans and lorries
In anticipation of new legislation, a policy decision has been taken to introduce a temporary reduction in motor vehicle tax (MRB) for delivery vans and lorries with effect from 1 July 2026. For delivery vans owned by businesses, the MRB rate has been halved. The MRB rate for lorries has been temporarily set at zero. These changes apply for the period from 1 July to 31 December 2026. The 2027 Tax Plan provides the legal basis for the approval set out in the policy decision. The sections of the Act setting out the rate reductions apply retroactively up to and including 1 July 2026. From 1 January 2027, the normal statutory provisions will apply again.
Temporary reduction in lorry tolls
The lorry charge came into effect on 1 July 2026. The amount of the lorry charge depends on the rate applicable to the lorry in question and the number of kilometres travelled by the lorry on chargeable roads. The rates and chargeable roads are laid down in the Lorry Charge Act. From 1 September to 31 December 2026, the rates will be reduced by 22.3%. This reduction is set out in an approving policy decision, in anticipation of legislation. The temporary amendment to the rates has been included in the 2027 Budget to provide the necessary legal basis.
Pseudo-final tax on fossil-fuelled passenger cars
The pseudo-final levy on fossil-fuelled passenger cars (pefa) will come into force on 1 January 2027, as set out in the 2026 Tax Plan. This levy amounts to 12% of the list price of the fossil-fuelled passenger car. Employers are liable to pay the levy if they make such a car available to employees for private use as well. This also includes commuting. The Government is now proposing a number of amendments to alleviate any issues that have been identified.
Replacement transport during maintenance and repairs
The PEFA does not apply to a replacement fossil-fuelled passenger car that an employee uses privately whilst their regular car is undergoing maintenance or repair. This exception applies provided that the replacement period does not exceed fourteen days per maintenance or repair period. This also includes tyre changes or damage repairs. If the fourteen-day period is exceeded, the PEFA is payable from the fifteenth day on which the replacement car is made available. The PEFA then applies to the entire calendar month in which the fifteenth day falls. The exception does not apply if the regular car has not been made available for private use, but the replacement car has been made available for private use.
Exception for driving school cars
Vehicles with zero CO₂ emissions usually have an automatic gearbox. For this reason, cars with manual gearboxes, which are used for driving lessons, are exempt from the pefa. This measure prevents the provision of manual-gearbox learner cars from being discouraged, which could limit the driving skills of new motorists.
Transitional law period
The transitional rules for cars first made available before 1 January 2027 are being extended until 31 December 2030 (previously 16 September). This avoids administrative burdens caused by the rules ending in the middle of a month or year. The extension is also more in line with the private use of cars scheme, which is also based on the calendar year.
Occasional secondment
There will also be a new exemption for the temporary use of cars, such as hire or car-sharing vehicles. An employer may, once per calendar year, make a fossil-fuelled passenger car available for private use for up to seven consecutive days without paying the levy. This applies per fossil-fuelled car, per employer and per calendar year. If the same car is used privately by another employee or for a second period in the same year, the exemption does not apply. The employer will then pay the levy for the months in question. This exemption will end on 31 December 2030.
Anti-cumulation provision
An anti-cumulation provision will be included in the Act to prevent the PEFA from overlapping with the pseudo-final levy on high severance payments. This means that the amount of the pseudo-final levy on excessively high severance payments will be calculated without taking the benefit of the fossil-fuelled car into account. This prevents double taxation on the same amount.