Fleets are rethinking vehicle choices as a result of an increase in benefit-in-kind (BIK) tax and vehicle excise duty (VED) based on new vehicle engine testing standards.
From April 6, 2018, the BIK diesel supplement increases from 3% to 4% for all diesel cars that are not certified to the Real Driving Emissions Step 2 (RDE2) standard (also known as Euro 6d). The first-year VED rate for diesel cars will also go up by one band.
All new models have undergone an emissions test under real driving conditions (RDE1) from September last year, while all new registrations will have to take it from September.
But the even more stringent RDE2 version of the test will not be implemented until January 2020 and will not be mandatory on all new cars until January 2021.
The British Vehicle Rental and Leasing Association (BVRLA) has said its discussions with vehicle manufacturers show there are unlikely to be RDE2 diesel engines available in new vehicles for the next 12-to-18 months.
While there are currently no RDE2 diesels available on the market, HMRC confirmed to Fleet News that when they do go on sale, they will no longer attract the BIK supplement.
The move shows that the Government backs the new generation of cleaner diesel engines.
Caroline Sandall, deputy chair of fleet representative body ACFO, said: “Whether this will speed manufacturers up on delivering RDE2 vehicles or not remains to be seen – let’s hope it does. But for now, none of the RDE2 cars are available, so it’s not good news yet.”
John Pryor, ACFO chairman, said that in the meantime fleets are having to look at all available options including shorter contracts and this has left drivers facing an increase in BIK.
Pryor told Fleet News: “Fleets are yet again forced to rethink strategy and driver communications in light of the changes pushed through by Government.
“Drivers are becoming more and more aware of the increasing costs here and seeking to find alternatives to limit their BIK exposure. We are seeing greater take up of petrol, hybrid and electric vehicles as a result.”
However, while ACFO has expressed frustration on the tax changes, top FN50 leasing company Lex Autolease said it had not seen a rush by customers to bring diesel vehicle orders forward.
Ashley Barnett, head of fleet consultancy at Lex Autolease, said: “Although recent announcements made by the Government around VED and an additional 1% surcharge on diesel vehicles have resulted in additional costs, there hasn’t been a move to bring forward diesel registrations as the impact, in most cases, is minimal.”
Barnett said the majority of vehicles in its corporate fleet are below the 114g/km limit. He said that even at 191-225g/km, the largest increase businesses can expect to pay is around £400 a year.
He said: “So while some will see costs towards the higher end, most will see just a moderate rise of between £15 and £30.”
Barnett is expecting however, an uplift in vehicle registrations with the March plate change, particularly towards ultra-low emission vehicles (ULEVs).
Gerry Keaney, BVRLA chief executive, said it has seen a gradual shift away from diesel vehicles, which could be attributed to the prospect of higher VED charges.
The BVRLA’s own quarterly leasing survey found that between Q3 to Q4 2017 new diesel vehicle registrations dropped from 63% to 59%.
Keaney said: “Fleets will need to carefully balance pulling forward planned purchases versus any costs associated with early termination.”
Lex is advising fleet managers to remain focused on choosing the right vehicle for the job. Barnett said there has been a trend for low-mileage fleets to shift towards ULEVs, but despite these new tax changes, diesel is going to remain the most practical high-mileage option for the time being.
He concluded: “Fleet managers are advising drivers not to view April 2018 as a deadline for change, but to make an informed decision about the best car for their needs when their lease is up for renewal.”