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Fleets fear how new emission values will impact company car costs

European Commission air quality rules, UK breach pollution level, ClientEarth air quality.

The Treasury has admitted it still has not made a decision over how company car tax and road tax will take account of the new emissions testing regime.

The Government published benefit-in-kind (BIK) tax rates for 2020/21 in 2016, giving fleet decision-makers sight of future tax liabilities for the next four years.

However, despite two further budgets and last month’s spring statement, the Treasury has consistently failed to outline its plans beyond April 2021, leaving fleets to order cars without any indication as to what their Class 1A National Insurance Contributions (NICs) will be, or the level of company car tax their drivers will face beyond this date.

The Government has previously announced that the new drive-cycle – the Worldwide harmonised Light vehicle Test Procedure (WLTP) – will replace the former New European Drive Cycle (NEDC) for tax purposes from April 2020. 

A Treasury spokesman told Fleet News: “We are currently working with stakeholders to assess what the move to WLTP means and the impact on both vehicle excise duty (VED) and company car tax.”

All recently launched and facelifted models have been tested under the WLTP regime since September, while it will be used for all new cars from this coming September.

For tax purposes, the WLTP CO2 value will be converted into an NEDC figure until the WLTP figures are adopted using a conversion tool called ‘CO2MPAS’.

However, figures suggest the conversion tool is increasing CO2 values by 10% on average or between 10-15g/km, leaving fleet decision-makers and company car drivers facing a potential tax increase.

Furthermore, research has suggested that WLTP values, when compared to NEDC, could be up to 30% higher.

Caroline Sandall, deputy chairman of fleet representative body ACFO and director of ESE Consulting, said: “We are in limbo. We have no clear steer from Government and therefore no ability to create long-term business plans that have reviewed and assessed all factors. 

“In the short-term, all fleets can do is to be as prepared as possible. But, given the vacuum of information, it is very difficult to make a call on the future.”

Sandall believes some fleets will choose to extend current vehicles until they receive clarification, but she added: “That can’t continue indefinitely and it only continues to cause driver dissatisfaction.”

She also warned that uncertainty over future taxation could encourage some to choose cash over a car, if available, as it will give them more control over future costs.

“We need clear timelines; Government needs to more effectively engage with industry bodies to discuss the impact and ensure that it is taken into consideration,” she said.

The UK’s largest vehicle leasing company, Lex Autolease, confirmed that the lack of clarity around the longer-term tax implications for fleets is causing buying decisions to be delayed and contracts extended. 

“This is also pushing employees towards a largely unregulated grey fleet environment, where higher emissions and safety issues create new challenges for employers,” said John Webb, principal consultant at Lex Autolease.

However, Webb claimed that when WLTP does become the sole means of calculating vehicle tax, it will only apply to cars that are unregistered at that time. 

“It won’t be applied retrospectively; any car registered with a CO2 value using NEDC will retain that figure during its lifetime,” he said.

Transition period ‘vital’

LeasePlan says it is vital that the Government engages with industry and provides some sort of transition period, which takes account of WLTP, along with grandfathering rights for vehicles already in operation.

Matthew Walters, head of consultancy and customer data services at LeasePlan UK, said: “If the Government doesn’t act and doesn’t give us some sort of run-in period or transition period, that’s going to be very, very painful. It’s got to do something.”

The Government has promised to publish a strategy on the pathway to zero emission transport in the next few months, while a wider clean air strategy and clean growth plan are expected later this year.

Fleet decision-makers may get a steer on the Treasury’s future taxation plans from these, but Walters stressed any fiscal announcements would have to be made in November’s Budget.

He is also concerned that the UK’s decision to leave the EU is dominating Government time. He said: “What we are seeing at the moment is Treasury and Revenue almost battening down the hatches in preparation for Brexit.”

The autumn Budget will be just four months before the UK leaves the EU on March 29, 2019.  

Arval told Fleet News it had not seen any significant pattern of moving to shorter replacement cycles or any increase in extending the life of a vehicle on fleet.

However, Shaun Sadlier, head of consultancy at Arval UK, said: “It is vitally important that the Chancellor makes the future strategy clear as soon as possible to allow companies – and drivers – to make informed choices.”

As it stands, he said: “ are having to take something of a leap of faith when ordering vehicles for contract periods of more than three years and, when the Chancellor presents the next Budget later this year, this period will have reduced to less than two-and-a-half years.” 

Drivers could seek compensation

Paul Tate, commodity manager at Siemens with a fleet of some 5,000 cars and vans, labelled the whole tax position a “nightmare” and is concerned how drivers might react if company car tax bills increase significantly. 

“We could be left dealing with employees demanding the business compensates them for taking a four-year contract if it becomes unaffordable,” he said. 

“What I would like to see from Government is somebody to realise what a mess it is causing and what impact this will have on its revenue as people start to jump ship.”

A major issue for Government, according to Walters, is the fact that so many departments have an interest in how vehicles are taxed.

The Office of Tax Simplification, the Department for Transport (DfT) and the Department for Environment, Food and Rural Affairs (Defra), along with HMRC and the Treasury, will want to have their say.

However, Walters said: “There needs to be more joined-up thinking and, while I’ve seen evidence of a desire to take this approach, it is tough.”

In the meantime, leasing companies are advising fleet decision-makers to remain focused on getting the right vehicle for the job.

Webb said: “As company car choice lists evolve to include more petrol hybrids and electric models, it’s important employees select the right option for their needs, while employers plan for the future.  

“Our recommendation is not to remove higher-emitting vehicles from the choice list altogether. Employees will consider the cost implications and pay the premium if needed, in order to meet their travel and lifestyle expectations.  

“The key is to ensure they have access to low emitting vehicles but, ultimately, have the flexibility to choose a car that is fit for purpose.”

Sadlier added: “We are working with decision-makers to assess and understand key fleet objectives and make the best policy decisions possible with the information available, whether their approach is based on CSR , wholelife costs or they simply want to keep the driver satisfied.”

However, he concluded: “What we really need from the Government, as soon as possible, is a clear indication of future strategies regarding not only vehicle taxation, but also about how they will encourage increased adoption of alternative energies through improved charging infrastructure.”

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Comments

  • Nigel Boyle - 23/04/2018 10:57

    What an unmitigated mess. To introduce a test/tax on people without telling them what the tax will be is propably the worst error I have witnessed. As per your article I see 10-30% increase bandied around everywhere - we need clarity. Most drivers are close to revolting with the ever increasing BIK costs and now this. Clearly the manufactureres needed to clean their act up, but why should the business driver be punished for it? The tax HAS to be netural or the government we loose out big time with tax. The company I work for is close to offering cash, not car. This (before this new increase) will save both the employer and employee tax in many cases and after will be a no brainer for everyone except the tax man. The straw that breaks the camels back.

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  • Sage & Onion - 23/04/2018 12:11

    The issue with WLTP was that is was supposed to be a tool to provide honesty and clarity on what car emissions and mpg would be like in more realistic driving conditions. And as Nigel has commented it should be cost neutral in tax because lets face it, the same car when measured on NEDC and NEDC-equivalent, will still produce the same Co2 and mpg in real-life driving conditions. Unless the manufacturers are busily tweaking their models and removing some completely from production in order to avoid an embarrassing admission that they were just as bad as the VW dieselgate scandal. I think what we will see is manufacturers moving to simplified model ranges that are already spec'd up with much fewer options available to be added. But from an HMRC viewpoint, I can see why they won't announce the BIK scales after 2020/21 as they will probably need to see where they need to be once all manufacturers have published their NEDC-equivalent figures. Therefore, I wouldn't be surprised if they abandoned the 4% tax penalty for diesels in the autumn budget.

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  • Rosco7010 - 25/04/2018 11:40

    The government isn't interested in addressing the WLTP changes as they relate to Benefit in Kind, because it should only apply to new cars beyond April 2020. So they don't understand the urgency. However, the lack of clarity is causing damage to the industry, and the result can be seen in new car registrations. Also all UK fleet managers should be aware that many employees will see significant company car tax increases for their current vehicle, which will be apparent to the diligent on this months payslip. For the less diligent, they will see it in June when the 2017/18 tax year is finalised. Many people are seeing their tax code change by 100 points (such as 432 to 323) which is £36 per month increase for a 40% tax payer, £18 pm for a 20% tax payer. These changes are not well advertised and as the article points out drivers can't change car if they are committed to a 3 or 4 year contract. In 2020, a vehicle which new today has a CO2 figure of 99g/km, could have a figure of 120-140g/km under full WLTP. If the government doesn't agree to change the company car tax bands accordingly, this would mean that the BiK % of the 99g/km diesel car will go from 17% (2015/16) to 32% in 2019/20 tax year. For a 40% tax payer this would be an increase on a £35k car of £2100 per year! The fleet manager from Siemens is correct to be worried. But legally, the company can hardly have predicted what the government could do. The other elephant in the room is ULEV's. Many hybrid vehicles that under NEDC are classified as a ULEV will possibly lose that under WLTP. Especially true of plug in hybrids with low EV ranges, such as the Mitsubishi Outlander PHEV and BMW, VW and Mercedes models. So the choice of car for employees is going to be either BEV, or range extender, as there is a cliff edge at 75g/km, and it is unlikely traditional hybrids and PHEV's will be below this figure.

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