The company car and fleet sectors have faced challenging times over the past few years. Increases in vehicle excise duty in response to public calls for clean air, rises in the cost of fleet insurance owing to increases in insurance premium tax and the death of diesels have all made trouble for the company car sector.
Now a new threat is on its way in the shape of a revision to an ‘oversight’ in the HMRC’s tax rules when it comes to the package of benefits-in-kind (BIK) associated with owing a company car. Industry experts have raised concerns that these changes could make company car ownership more expensive and so add further pressure to this embattled sector. But will this lead to a decline in demand for company and fleet cars, or is this just another change that drivers will accept with (good) grace? Let’s look at the evidence.
No one’s infallible. Everyone makes mistakes. Organisations large and small drop the ball from time to time and that’s precisely what the HMRC did in their ‘oversight’ when outlining BIK rules for salary sacrifice drivers. When the new Optional Remuneration Arrangements (OpRA) were originally announced, the industry was told that maintenance insurance, tyres and breakdown cover would not be taxed.
A year later, however, they changed their position and said that they had always intended to include these things in the package of legislation and that these changes will apply from April 2019. The effect could be the addition of anywhere from £100-£240 per year for drivers, and has raised concerns that those who took up the offer of a car in good faith could now find themselves paying more for it compared to taking up a standard personal contract plan instead.
Employers too will end up paying more tax in terms of Class 1A National Insurance making this a double whammy for the sector as a whole. The industry have slated the move as a ‘a £365 million tax-grab from company car drivers that will have no impact on the environment.’
SG Fleet reported that based on its analysis, 43% of the 14,000 vehicles currently on its system will be affected by the new rules, with more than a third - 36% - seeing their monthly company car tax bills go up by around £120 a year.
When taken in conjunction with fleet cars, company vehicles account for 55% of all new car sales in the UK, according to the Society of Motor Manufacturers and Traders (SMMT). This obviously means they remain a popular choice. HMRC’s own figures suggest that far from declining in popularity, the numbers of drivers with one hit a 5-year high in 2017 as 960,000 employees paid BIK tax on a company car in 2015/16 – a 1% rise on the revised figure of 950,000 recorded the previous financial year.
They are also amongst the most valued benefits by employees. A recent UK Gov poll revealed that they rank second on the list of benefits – behind a company pension – and OSV’s poll found that 27% of employees who had a company car would have turned the job down had one not been on offer.
All this suggests that the latest changes won’t have a significant effect on the numbers taking them up – at least not in the short-term. But could it be another step towards the tipping point whereby salary sacrifice just become more expensive than private leasing? And what of the tax implications around diesel and petrol cars? The overwhelming majority of company vehicles are traditionally fuelled and with diesel being taxed to death does this signal the beginning of the end?
Electric vehicles have been the hot topic of conversation for a couple of years now, though for most companies they remain the future of fleet, not the present. Surprisingly, the government has had electric company car tax rates in place since 2002, rates that were introduced with the specific intention of getting drivers to choose vehicles with low CO2 emission levels. The rate is calculated using the car's P11D value - the value of the car including VAT, delivery and any extras such as satellite navigation as well as the CO2 emissions produced.
Unsurprisingly zero emission vehicles incur far less tax that their fossil fuelled equivalents. For example, a vehicle with a P11D value of £30,000 and an identically priced petrol car that emits 104g/km CO2, would see significant savings for lower (20%) and higher (40%) tax rate drivers. Over a typical 4-year deal the lower rate company car driver would pay £2,940 less in BIK tax driving the electric vehicle, while a higher rate taxpayer would pay £4,880 less.
With electric car sales soaring in the UK – up 11% on 2017 – and companies such as BP, ChargePoint and EVBox pledging to install 3.35m new electric charge points in America and Europe by 2025 – the future for company cars could well be both bright and affordable.
There’s little doubt that company car drivers have been treated as cash cows by successive governments. Tax levels have risen steadily and will, if anything, continue to do so as the Chancellor seeks to raise revenues while driving down emissions in the quest for clean air. In the short-term this could make company cars less attractive and straight leasing deals will become more desirable. In the mid-long-term, however, as electric fleets take over and as the tax gap becomes even wider, so drivers’ desire for a company vehicle will be become affordable once more.
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