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.”