Continuing increases in company car benefit-in-kind tax will mean a “rapid decline” in employee take-up of the ‘perk’, the British Vehicle Rental and Leasing Association (BVRLA) has warned the government.
Chancellor of the Exchequer Philip Hammond in his Budget Statement on Wednesday, November 22 is expected to:
- Announce company car benefit-in-kind tax rates for 2021/22 – rates up to the end of 2020/21 have already been published
- Follow-up on a pledge made in this year’s March Budget when he served notice that the “tax treatment for diesel vehicles” could change as the government looked to cut pollution from the transport sector and improve air quality. Since then the government has published a plan setting out how the UK’s air quality goals would be achieved notably through a network of Clean Air Zones in towns and cities and encouraging increased demand for plug-in vehicles, while diesel vehicles have been “demonised” in the national media for their emissions and largely taken the blame for the UK’s poor air quality in urban areas.
- Take the opportunity to announce how and when vehicle-related taxes – company car benefit-in-kind tax, Vehicle Excise Duty and capital allowances – currently linked to car emission levels as measured under the New European Driving Cycle (NEDC) test will be redrawn following this year’s introduction of the Worldwide harmonised Light vehicles Test Procedure (WLTP). Industry experts have suggested that carbon dioxide (CO2) emission figures on a car-by-car basis could increase by about 20% with introduction of the WLTP. As a result, it is widely expected that tax rates and band thresholds will be changed to mitigate any tax rises. HM Treasury has previously said that it would “look to agree a suitable moment to move the tax system from NEDC to WLTP. HM Treasury has also said that it did not see WLTP as a tax-raising development, but as transitional.
- Provide an update, following a ‘call for evidence’, on any government plans to change the taxation of benefits-in-kind and employee expenses and that includes Approved Mileage Allowance Payments made to employees that drive their own cars on business journeys.
- Answer a long-time call from ACFO, the fleet managers’ organisation, for HMRC to publish Advisory Fuel Rates for plug-in cars alongside those for petrol, diesel and LPG models.
- Publish new Vehicle Excise Duty rates from April 1, 2018
- Announce car and van fuel benefit charges and van benefit charge increases effective from April 6, 2018.
The company car benefit-in-kind tax rate on a model with CO2 emissions of 100g/km in 2017/18 is 19%, but that is due to rise to 25% by 2020/21. The BVRLA has urged the Chancellor to introduce a “progressive company car tax regime” that did not encourage employees to opt into personal contract hire (PCH) schemes thus potentially selecting vehicles with emissions than they might have selected via a corporate scheme.
Highlighting that the number of company car taxpayers had reduced by 110,000 over the past decade as year-on-year tax rises had driven employees into cash allowance schemes, the BVRLA has urged Mr Hammond “not to add further tax burden upon the company car market”.
The rising burden of company car benefit-in-kind tax had, said the organisation in its pre-Budget submission to HM Treasury, triggered a rise in the number of ‘grey fleet’ vehicles – employees who drive their own cars on business trips – and pointed out that those cars were invariably older and more polluting than newer company-provided models with “little or no oversight from the employer”.
Warning of the “adverse political and economic harm” of potentially raising more tax from diesel company car drivers, the BVRLA, said: “The vast majority of these employees are essential business users undertaking business journeys on the motorways and rural roads using the latest engine technology.”
It continued: “Employers operating company cars also ensure that employees only select the most suitable and fuel-efficient car, as they are responsible for the costs associated with all business trips. Punishing employers and their employees for using or selecting a diesel car would therefore be wholly inappropriate and grossly unfair. There is now a real danger that continued tax rises on this class of employees will result in a rapid decline in this type of benefit being selected by the employee.”
Consequently, the BVRLA has told the Chancellor: “We feel the government should take a fairer approach by looking at wider general taxation to help address any funding gap that may exist.”
What’s more, the BVRLA argues in its submission that company car demand should have increased in recent years as the UK economy grew following the 2007/8 recession.
It warns: “New car sales continue to fall as businesses and consumers put off commitment to major spending decisions. Successive Budget announcements have seen the overall tax take from the business motoring sector rise sharply and it is clear that they are now having a negative impact on average car CO2 emissions, which have risen year-on-year.”
Recently published BVRLA data suggested that average CO2 figures for newly registered lease cars grew to 111.8g/km in Q2 2017, up from 110.8g/km (+0.9%) from the previous quarter and up 0.7% compared to the same period in 2016.
The submission tells the Chancellor that the autumn Budget was “an ideal fiscal opportunity to help restore market confidence but importantly give a well-needed stimulus to boost the uptake of the greenest and cleanest vehicles. Our sector requires greater tax stability and certainty to flourish, both prior to and following the UK’s eventual withdrawal from the European Union”.