Fleets must future-proof company car choice lists as industry anger mounts over government diesel company car 2018 tax rises

Businesses must future-proof company car choice lists as industry anger mounts at the government’s decision to increase benefit-in-kind tax bills for around 800,000 employees who drive diesel vehicles from April 6, 2018.

There have even been suggestions that Chancellor of the Exchequer Philip Hammond, who announced the measure in the autumn Budget Statement, is trying to “kill the company car”.

However, any such move would be extremely short-sighted as, with the political focus on improving air quality company car drivers are typically at the wheel of the safest low-emission vehicles available.

What’s more any move away from company cars and a rise in demand for cash allowances signalling an increase in the size of the UK’s ‘grey fleet’ – employees who drive their own cars on business trips – would significantly increase corporate administration, notably in respect of work-related road safety and employers’ duty of care compliance requirements.

A further option to save tax would be for either employers to ‘downgrade’ the level of company car entitlement to staff or for employees’ to voluntarily choose a cheaper vehicle than the grade to which they were entitled.

Meanwhile, the Society of Motor Manufacturers and Traders (SMMT) says that the government’s “on-going anti-diesel messages” are undermining business, as well as consumer, confidence, manifesting itself in new car registrations falling in November for the eighth consecutive month.

SMMT chief executive Mike Hawes said: “Diesel remains the right choice for many drivers, not least because of its fuel economy and lower CO2 emissions. The decision to tax the latest low emission diesels is a step backwards and will only discourage drivers from trading in their older, more polluting cars. Given fleet renewal is the fastest way to improve air quality, penalising the latest, cleanest diesels is counterproductive and will have detrimental environmental and economic consequences.”

The forthcoming tax rise further underlines the requirement for fleet decision-makers to future proof their vehicle operating decisions as the default fuel choice may no longer be diesel with petrol, hybrid and plug-in vehicles all potential viable alternatives.

The Chancellor announced that the existing company car benefit-in-kind tax supplement would increase from 3% to 4% from April 6, 2018. He said the take hike would help to pay for air quality improvements with transport emissions one of the biggest contributors to pollution.

The rise from 3% to 4% applies to all diesel cars (not hybrid diesels) registered on or after January 1, 1998 that are not certified to the new Real Driving Emissions 2 (RDE2) standard.

The government admits that “few, if any cars, cars will meet RDE2 standards in 2018 to 2019” as the standard is not due to be fully mandatory until 2020. However, any diesel cars that are certified to the RDE2 standard will not be subject to the supplement.

The government says that 350,000 company car drivers per year replace their vehicles, so within a few years, most affected drivers would have had the opportunity to choose new models not subject to the supplement.

The rise in the diesel car tax supplement is in addition to company car tax increases previously announced for consecutive year up to the end of 2020/21. Those rises means, for example, that tax on a 99g/km diesel car will increase from 21% (including 3% supplement) in 2017/18 to 28% in 2020/21 (including 4% supplement) – a rise of 33%.

Government calculations suggest that drivers of a BMW 3 Series (CO2 emissions 111-130g/km) will see tax bills rise in 2018/19 by £60 (basic rate taxpayer) and £120 (higher rate taxpayer), a BMW 6 Series (CO2 emissions 131-150g/km) by £125/250 and a Ford Focus (CO2 emissions 91-100g/km) by £43/£86.

For any employees driving cars that meet the RDE2 standard and are therefore exempt from the new 4% supplement, HM Revenue and Customs says it will issue guidance on how they should be treated so that the diesel supplement is disapplied. The government currently estimates that will affect the “low hundreds” of employees.

For 2019 to 2020 onwards, employers will have to note reported NOx emissions for new diesel cars and check whether or not they meet the RDE2 standard. The government says that information will be available on the same documentation – the certificate of conformity – which lists a car’s CO2 emissions figure.

John Pryor, chairman’s of fleet decision-makers’ organisation ACFO, called the tax hike “grossly unfair”.

He continued: “Fleets and drivers choose to operate diesel company cars because they are efficient, particularly for when clocking up high annual mileages. To penalise such a business-led decision is grossly unfair.

“With already announced company car benefit-in-kind tax rates rising year-on-year, the one percentage point diesel supplement increase further slices away at the value of company cars to both employers and employees. Employees particularly may think that it is not worth having a company car and may opt for a cash allowance.”

By allowing employees to take a cash allowance and “do their own thing”, Mr Pryor warned  that they may choose an older, more polluting vehicle than the company car they may otherwise have been entitled to, which then damaged the government’s bid to improve air quality.

Gerry Keaney, chief executive of the British Vehicle Rental and Leasing Association, accused the government of “going back on its word” by retrospectively raising the company car tax bill of hundreds of thousands of workers.

He said: “People that chose a diesel car as a cost-efficient, low CO2 form of essential business travel are being punished unfairly. Why should drivers at work be treated differently from other taxpayers?”

Paul Hollick, chairman of fleet industry training organisation ICFM, accused the Chancellor of being “on a mission to drive employees out of company cars”.

With company car benefit-in-kind tax bills due to rise year-on-year to the end of 2020/21, Mr Hollick said: “The actions that the government is taking shows that it does not understand that the emissions problem – and therefore the whole air quality problem – is with older vehicles. Cars that meet Euro6 emission standards, which is an increasing number of company cars, are the ‘cleanest’ available.”

  • Chancellor of the Exchequer Philip Hammond also announced in the Budget that a Vehicle Excise Duty (VED) supplement would apply to apply to new diesel cars first registered from April 1, 2018, so that their First Year Rate is calculated as if they were in the VED band above. For example, a Ford Focus diesel (CO2 emissions 91-100g/km) will be subject to an additional £20 in the First Year, a Volkswagen Golf (CO2 emissions 111-130g/km) an additional £40, a Vauxhall Mokka (CO2 emissions 131-150g/km) £300 and a Land Rover Discovery (CO2 emissions 171-190g/km) £400, according to government figures. The measure will not apply to next-generation clean diesels – those meeting the RDE2 standard.

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