Fleet News

Number of company cars plummets again

A MASSIVE drop in the number of company car drivers for the second year running may force a Government review of the benefit-in-kind tax system.

According to HM Revenue and Customs (HMRC), the number of tax-paying company car drivers plummeted at the rate of more than 1,200 a week in the last year for which statistics are available.

The figures also revealed the number of drivers being paid to cover business mileage in private vehicles has jumped by at least 250,000.

The latest figures add to Government concern about major changes to the way company fleets operate, especially as the change is having a significant financial effect on taxable income from the industry. Government documents show that the number of company car drivers dropped by 70,000 to 1.3 million by April 2004, the latest year for which figures are available.

It continues a trend of falling numbers of company car drivers since 2000, with the highest drop in the past two years.

In the tax year 1999/2000, there were 1.61 million company car drivers who paid tax. This fell slightly to 1.6 million a year later.

During 2001/2002 the number fell 50,000 to 1.55 million, but by far the biggest drop was recorded at the start of the carbon-dioxide company car tax regime, a year later, when numbers fell to 1.37 million.

Fleet News reported exclusively last year on this first major fall in company car drivers and revealed it had sparked a major policy review at the Inland Revenue, now HM Revenue and Customs.

Fleet News understands that civil servants are still looking closely at the causes of the fall, the effect on tax income and potential solutions.

In 1999/2000, company car drivers paid £1,850 million in company car tax, but this has now plummeted to £1,640 million. As a result, National Insurance Contributions have also dived, from £680 million to £590 million.

In total, the Government is losing £300 million a year compared to its tax-take from company car drivers four years ago.

The reason for the fall is still unclear, although many in the industry believe it is a result of drivers moving into a range of cash-for-car schemes, ranging from simple salary increases to tax-efficient employee car ownership schemes.

HMRC figures also show a marked increase in the number of drivers receiving taxable mileage allowances, up from 230,000 to 570,000 in the past three years.

The figures only show directors or employees who receive payments for mileage in a private vehicle on which tax is payable, so they would need to be receiving more than the already-generous Authorised Mileage Allowance Payments (AMAP) rates used by hundreds of thousands of drivers.

HMRC officials say the figures need closer investigation, but they clearly show there has been a massive increase in drivers covering business mileage in private cars. There is speculation that the Government is still considering a review of the tax and National Insurance-free AMAPs.

These allow private vehicle drivers to claim 40 pence per mile for the first 10,000 business miles covered in private cars and 25 pence per mile for further mileage. If employers don’t pay the full sum, drivers can reclaim a tax break for the shortfall.

The AMAP rates are also a key aspect of many personal leasing schemes, allowing employers to generously reimburse private vehicle drivers for business mileage without incurring tax or NI liabilities.

Experts suggest these are at the heart of what makes opting out of a company car so attractive and that is why the Government could tackle them.

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