The history of the taxation system is not something that many would ever look back on in fondness, but there is one element that fleet managers might wish there was more of these days – certainty.
As things stand, HMRC has only laid out what the company car sector can expect for the next two tax years – 2019/20 and 2020/21. In the past, fleet managers would be able to look at least three years ahead.
This lack of clarity is one thing that is causing issues, but the information that is already out there has the potential to cause serious headaches in the coming year.
There are two major issues that look to be shaping fleet make-up in the coming year, with the first being a major leap in the tax rates across the board. Almost every emissions band is set to see an increase of 3% in its Benefit in Kind rating.
ACFO company car viability proposals
Fleet operators’ association ACFO has laid out six points it wants the government to implement to boost company car viability:
1. Realign Benefit-in-Kind tax bands to smooth the transition to WLTP
2. Implement the 2% BIK tax rate for cars with CO2 emission of 0-50g/km immediately
3. Provide a continuous four-year view of company car BIK thresholds
4. Remove the existing 4% BIK tax supplement on diesel cars
5. Confirm an extension of the existing plug-in car grant scheme for at least two years
6. Consider further incentives to encourage adoption of ultra-low emission vehicles
Fleets will have to some extent been prepared for this with the 2% increase in BIK that came with the move from 2017/18 to 2018/19, but this extra step up will likely have an impact, with mainstream cars now approaching 30% BIK tax brackets. Add in the diesel supplement, which sits at 4% and is unlikely to be ditched any time soon, and the traditional company car list might take on a very different look in the coming year.
Models such as the BMW 320d M Sport, which would have been deemed to be in a low tax bracket just a few short years ago with its 117g/km CO2 rating, are now set to attract a BIK rating of 31%, which means a rise of £38 per month for a higher-rate taxpayer.
With such notable changes in the last two years, and no clarity on what the industry can expect in the years beyond 2020/21, the likes of Lex Autolease are witnessing a slight hesitancy in company car users’ thinking. “We are seeing that people are holding on to their vehicles for longer,” says Lex Autolease’s head of fleet consultancy Ashley Barnett.
“If somebody decides they want a company car today, by the time that gets delivered in May, you only know what you are paying for two years.”
He points out that this will continue while there is no word on what the taxation system will bring. “We will see people hold back making those changes until they know the full effect. If you enter a four-year commitment and you can expect to know what to pay over that four-year period then you go in with an element of certainty.”
The impact of this is that people are renewing cars, with extensions at a 10-year high, or opting out of the company car scheme altogether. With the VED rate no longer set on CO2 emissions, the driving factor for car allowance buyers is cost, says Barnett.
“If, in my mind I have £400 a month, most users won’t look for a car that has sub-110g/km,” says Barnett. Instead, they will look firstly for what meets their £400 criteria, and secondly, they will ask “what is the biggest and nicest car I can get?”
The other major impact for 2019/20 concerns low-CO2 cars. For one year, there seems to be no major incentive for a company car user to opt for an electric or plug-in hybrid vehicle. The BIK rate for a car that is capable of 130 miles or more in pure electric range might well be going down to 2% in the 2020/21 tax year, but this year the rate for anything with a CO2 rating of 0-50g/km is subject to the same 3% rise as every other vehicle.
This means it rises from 13% to a whopping 16% before dropping down again in 2020/21, which is a notable first-year cost for even the most dedicated of electric vehicle evangelists.
Despite this, a spokesman for the BVRLA maintained that the future was still electric for those looking to cut fleets’ costs.
“Going as low-emission as you can is always a good bet,” the spokesman said. “Despite the fact that the cost is going up this year, it will go down to 2% next year and they won’t start hiking it again.”
The hope is that there will be some clarity at the forthcoming Spring Statement on 13 March. Experts are not expecting much of an update on future tax year plans, though, so fleets could be left waiting until the autumn. What should be clarified are the plans around WLTP. The consultation on WLTP and its impacts closed on 17 February, and Chancellor Phillip Hammond is expected to announce the results. Fleets will be hoping, and expecting, a rare moment of clarity.
All the latest tax tables and information are available through the CCT web app at www.companycartoday.co.uk/toolbox/fleet-tax-guide.