The Company Car Tax (CCT) regime is one of the Government’s most powerful tools in influencing the behaviour of businesses and individuals. A fair, consistent and well-signalled system can play a vital role in helping the government to meet its air quality improvement goals. The Treasury has a tremendous opportunity to accelerate this process and accentuate the results with a simple realignment of the CCT regime.
A company car is a vehicle owned or leased by an organisation but provided to an employee for their business or personal use.
In its June 2019 Benefit-in-Kind Statistics, HMRC estimates that around 890,000 company car drivers use their car privately and therefore have it treated as a taxable Benefit in Kind. Many of these drivers are basic rate Income Taxpayers who have to use their company car as part of their job. Over half of all company car drivers (56%) have their vehicle as a job need rather than a perk, rising to 77% for basic rate taxpayers.
Since 2002, Company Car Tax has been calculated based on the vehicle’s list price and CO₂ emissions, creating a major incentive for drivers to choose low emission models. As a result, the average emissions of a BVRLA-member provided company car have fallen year-on-year, reaching an average of 112.0g/km CO₂ at the beginning of 2018. They are leading the way in the drive towards lower emissions, with the average newly registered company car emitting 10% less CO₂ than its privately registered counterpart.
A steady increase in the tax burden borne by company car drivers is putting this carbon reduction success story at risk. The number of company car drivers estimated by HMRC has dropped by 50,000 from the preceding year’s figure – though HMRC attributes the drop to the introduction of voluntary payrolling. More employees are now choosing to forego their company car in favour of a company provided ‘cash allowance’, which is taxed but gives employees the freedom to finance their own car via a personal lease or pocket the money and use an existing household car for business (also known as ‘grey fleet’). BVRLA data suggests that the average personal lease car emits 11% more CO₂ than a company car, while the average Grey Fleet car emits 19% more CO₂.
Further BVRLA research also shows 27% of businesses currently offering company car schemes are very likely to offer a cash alternative in the near future.
Ahead of the 2018 Autumn Budget, the BVRLA called upon the government to:
1. Freeze Company Car Tax at 2018/19 rates for all but Zero Emission Vehicles
HMRC’s most recent estimates showed a decline of 20,000 in those paying company car BIK tax. Freezing the current tax burden and providing greater clarity of the future rate would help address the motives driving some employees into opting for a cash allowance instead.
2. Bring forward the 2% Company Car Tax threshold for Zero Emission Vehicles to 2019/20
Under the previously existing plans the BIK rate for electric company cars would have soared to 16% in April 2019 before dropping to 2% the year after, actively disincentivising the take-up of electric vehicles as company cars. However, by bringing forward the 2% CCT rate for zero emission vehicles, the Government could instead have stimulated the new and used electric vehicle market.
3. Eliminate unintentional tax increases arising from WLTP
The transition to WLTP, the new fuel and emissions testing scheme, had the potential to cause an unintentional tax rise. In some cases, the NEDC correlated CO₂ values could be up to 17% higher than existing NEDC values, while WLTP CO₂ values are typically 20-30% higher. This means that some vehicles could move up four bands higher on the CCT table – resulting in an unintentional tax rise for drivers. Applying a 2% discount to cars registered on or after 1 July 2018, to account for NEDC correlation, as well as providing a tax neutral transition to WLTP could have addressed this distortion.
4. Publish 4 to 5 year view of future Company Car Tax Bands
To manage the lifetime cost of their vehicles – which are typically leased over four years – the average fleet or company car driver requires at least four to five years visibility on future CCT rates. The lack of published CCT rates beyond 2021 was therefore causing uncertainty.
5. Other CO₂ based motoring related taxes
In light of the NEDC correlated and WLTP changes to emission levels recorded, the Government must ensure that it applies tax neutrality to all other CO₂ based taxes, not only company car tax. This includes Lease Rental Restrictions, Capital Allowance and Vehicle Excise Duty (VED).
The BVRLA has been meeting regularly with MPs, as well as senior Treasury and HMRC officials to discuss its calls for changes to the Company Car Tax regime. The association also commisioned specialist research to provide the evidence required to support its calls.
Additionally, calls for changes to the company car tax were included within the policy asks of the BVRLA's 'plug-in pledge' which was launched at a Parliamentary reception in July 2018. The event was attended by over 100 members and stakeholders as well as 30 parliamentarians who took the opportunity to add their names in support of the pledge. Similar requests were included within the association's response to the government's WLTP review in early 2019, which was supported by over 150 members and related stakeholders via an online campaign lead by the BVRLA.
Therefore, in July 2019 the BVRLA welcomed an announcement from HM Treasury confirming the government’s decision to freeze company car tax. A move set to benefit just under a million company car drivers.
Those with vehicles registered before 6 April 2020 will see their company car tax bands being frozen at the 2020/21 rates until 2022/23. Those registering new cars after 6 April 2020 will also be rewarded with a two-percentage point tax cut. It will also see all zero-emission company cars paying no tax.
After the two-percentage point decrease in 2020/21, CCT rates will then increase by one percentage point in 2021/22 and 2022/23. The government has also confirmed that it will aim to announce appropriate percentages at least two years ahead of implementation to provide certainty for employers, employees and fleet operators