Chancellor of the Exchequer Gordon Brown made the shock announcement last week that he would impose the levy on diesel cars from January 1, 2006. Although the policy will take effect from that date, it will not be implemented until April 6, 2006.
An Inland Revenue spokeswoman said the waiver of the 3% diesel supplement was introduced to encourage early take-up of cleaner Euro IV technology and it has achieved that purpose.
As Euro IV emission standards will become mandatory for all new diesel cars registered from 1 January 2006, there is no point in retaining it.
However, all Euro IV cars registered before January 1, 2006 will still qualify for the 3% waiver.
The Association of Car Fleet Operators (ACFO) this week signalled its intention to fight to reverse the decision and has accused the Government of making a ‘wrong-headed’ decision.
It says it has consistently called for company car tax stability to help fleet operators plan effective vehicle policies, with long lead times before new policies are introduced to help fleets adapt.
Director Stewart Whyte said: ‘The new diesel supplement will impede these policies and send yet further signals to fleets that working out a fleet strategy is just a waste of time, because the Government will simply act for short-term expediency. We will be seeking to get this wrong-headed policy reversed, or a clear, long–term statement of intent about what direction fleets should follow for consistently good fleet operational polices.’
The changes could have a major effect on the company car market, sparking a rush of registrations before the tax penalty is introduced.
Alistair Kendrick, director PAYE/NI Solutions at Ernst & Young, commented: ‘This is a retrograde step. Companies will need to revisit their fleet policies and firms may need to move back to petrol-engined cars. A lot of companies have worked to introduce diesel.
‘Because of the timing of the legislation, I wonder whether employers will look at accelerating their disposals before the introduction of the penalty.’
Bosses at Interleasing said the move leaves fleets in limbo without the information to allow them to plan for the future.
The Society of Motor Manufacturers and Traders (SMMT) said it was ‘shocked’ by the decision.
Chief executive Christopher Macgowan said: ‘It simply doesn’t make sense to remove this waiver in one fell swoop.’
However, the move was welcomed by ALD Automotive executives as a way of getting company car drivers back into petrol-engined cars, resulting in a reduction in ‘booming’ diesel sales.
Deputy managing director Nigel Fletcher said: ‘The continuing acceleration of diesel company car demand will dramatically hit residual values as vehicles start to enter the used car market next year in greater volumes. It was important that, at least, some positive measures were taken to address this.
‘But it is likely to result in companies bringing forward vehicle replacement cycles to enable staff to escape the additional tax charge.’
In the pre-Budget statement plans were also announced to change the VAT fuel scale charge and reduce duty on bio-ethanol.
Ford Mondeo 2.0 TDCi 115 Zetec 5dr (Euro IV)
BIK tax pre-2006 £3,167
BIK post 2006 £3,690
A 40% taxpayer will pay
Pre-2006 £1,276 per year
After-2006 £1,476 per year