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Open letter to the Chancellor: "Company car BIK tax system is unfair and unjust"

The current company car benefit-in-kind (BIK) tax system is unfair, unjust, doesn’t deliver on the Government’s environmental policies and causes problems for employers.

The system is unfair because it requires people to pay the same amount of BIK tax regardless of the benefit they obtain. If two colleagues do identical jobs in identical company cars, but they drive 20,000 and 2,000 private miles a year, the latter will pay 10 times more for those private miles. The tax rules say this is fair because the car is ‘available for their use’. Well, quite a lot of things in life are available for use – Eurostar, Wembley Stadium and my local Italian restaurant come to mind – but in every other case we’re only expected to pay when we actually use these things, not simply because they happen to be there. 

The system is unjust because you have just increased by 50% the planned tax rise for drivers of diesel vehicles from next April. This is just a £365 million tax-grab from company car drivers that will have no impact on the environment.

The system fails to meet your Government’s environmental policies because it encourages employees and employers to abandon diesel and move ‘back’ to petrol, reversing years of excellent progress in reducing CO2 emissions. 

CO2 for newly-registered cars run by British Vehicle Rental and Leasing Association (BVRLA) members has risen – yes, risen – for the first time in years, as a result of your vilification of diesel and without regard for the fact that Euro 6 engines are much cleaner than Euro 5. 

The new optional remuneration arrangement (OpRA) rules further undermine your environmental policies, because by taxing an employee on the cash allowance they are entitled to receive rather than the BIK tax on the car they actually choose – as you will if that generates a bigger tax liability – you remove the incentive to choose a low-CO2 car.

As if all this wasn’t bad enough, the current system of sharp tax increases can encourage employees to take cash allowances rather than a company car. But it is easier for a leasing company to ensure a leased car is properly maintained, repaired, MOT tested, etc, than it is for an employer to manage a similar process for grey fleet cars. 

I’m sure you have people designing a new company car BIK system. Here are some suggestions to consider:

  1.  Make the BIK tax charge reflect the actual benefit to the employee. There are several options; my favourite is to require the employee to certify whether their private mileage has been minimal (say, under 2,000), modest (2,000-5,000), high (5,000-8,000) or very high (more than 8,000). Flex BIK to reflect private use. 
  2. Scrap the 1% increase in the diesel supplement. It is grossly unfair. 
  3. Reverse OpRA. If someone takes the cash, tax them on that allowance. If they take a company car, tax them on the benefit-in-kind. 
  4. Change the ‘appropriate percentage’ for zero emission cars. It is daft to have a system that will rise from this year’s 9%, to 13% next year and 16% the year after, then reduce to 2%. What message does that send? If you want to encourage the take-up on new EVs, change the percentage to 2% from April 2018.
  5. Fix appropriate percentages. The current system increases BIK by more than inflation every year. If I had chosen a 105g/km petrol car early in 2017, I’ll have been taxed at 20% this year, rising to 26% by tax year 2020. That’s a 30% increase. Instead, set appropriate percentages for the duration of the use of the car. If I choose a car based on 20% tax, that should be the appropriate percentage until I hand it back.
  6.  If you really want to encourage the take-up of EVs, tilt the BIK further in favour of low CO2 cars. If someone is foolish, selfish or wealthy enough to opt for a high-CO2 170g/km car, their BIK tax should be based on an appropriate percentage of 45% of the list price.

Now, here’s a more radical proposal: scrap the BIK table. It is way too complicated and is no longer fit for purpose. 

We are keen to reduce CO2 and particulates and nitrogen oxides, and we want to encourage the take-up of EVs. 

So replace the BIK table with a labelling system similar to the EU Energy System. Anyone who has bought a washing machine knows how this works.

A number of parameters are measured, and the device is awarded an energy efficiency class from A-G.

We need a name for this system: let’s call it the Eco-Score system.

To achieve the best scores, a car will need to have low CO2, NOx and particulates emissions, while travelling a fair way on battery only. If it falls short on one or more, it will not score as highly. 

This system allows you to include multiple parameters without confusing fleets. The score will also appear on the V5C. Maybe my employer will say I can’t choose anything scoring less than a C. 

And, if the BIK charge is fixed from day one for the life of the car, I will know exactly how much BIK tax I am going to pay and can plan accordingly. 

Over time, as cars get more CO2-efficient, emit less NOx, travel further under electric power alone, etc, the gradings can be changed but the consumer won’t need to worry about how they are calculated. They’ll just know that Eco-Score A is the best. 

For there to be faith in the system, you would have to commit that any change to Eco-Score, or subsequent change in the underlying measurements, will be revenue-neutral rather than tax-grab. 

These are just some thoughts designed to bring some new thinking to a system that needs to be made fairer for the employee, deliver on the Government’s environmental policies and make life simpler for employers.








Professor Colin Tourick works for University of Buckingham Business School

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Comments

  • bob the engineer - 30/01/2018 18:26

    Some great ideas in there, I personally have been harping on about the unfairness of the assumption of the benefit of cars. How can it ever be fair that someone who uses a vehicle 90% of the time for business and 10% personally pays exactly the same tax as someone who does 10% business use and 90% private? we have plenty of both extremes in our company for sure. I certainly don't begrudge anyone a perk car but that is what it is, for many a company car is a mobile office/workshop/supply store/toolbox/4wd drive site access tool etc- its like being taxed for having a computer or set of screwdrivers made available! - which of course we don't, even though, heaven forbid we may do something non work related on the computer or put a shelf up at home with the screwdrivers!

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  • Marc - 31/01/2018 12:05

    Colin - on the right direction but clealry you are determined to upset the Chancellor and damage the chances of an Honors gong or two in the future - :)

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  • Rosco - 20/02/2018 12:00

    Prof Colin Tourick- I really feel the frustration coming through in that letter. The government should realise, or at least read the correspondence from the "consultation" prior to the Autumn budget. All of this was covered and highlighted to them, but they chose to ignore everything. We are seeing drivers moving from company car to car allowance in great numbers, even drivers with substantial private mileage are seeing the break even point rise. I calculate that a 110g/km diesel, common company car, will have a breakeven mileage of over 17,000 private miles going into 2019/20 tax year. There is an issue with the colour coded A-G environmental grading though. As it may encourage people to retain company cars beyond 4 years, as the tax will continue to be low. I suspect you may get some odd consequences from that. I would just add a 5 year rule in, that after 5 years old the car will be recalculated. But otherwise some good ideas. This new system has complicated everything far too much, its difficult to understand, explain, and it penalises company car drivers, who will often be locked into a 4 year replacement cycle. Why will a driver with a cash for car option, choose a lower emitting vehicle, if they will end up paying higher tax anyway. This measure totally undermines the purpose of the CO2 based taxation and encouraging "green" choices. Total own goal, as many cash takers will maximise their cash by getting pre-owned vehicles, which don't attract VAT. But the consultants on this project have their fingers in their ears happily humming away. In the meantime our fleet departments will be busy trying to explain that the change in their pay is not the fault of the company, but of the government and HMRC. What joy.

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