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.
HMRC estimates that around 940,000 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 Tax payers 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 tax payers.
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 20,000 from the preceding year’s figure. 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.
The BVRLA are concerned the current plans for the Company Car Tax may become both unfair due to wider changes to emission measurements through the introduction of WLTP as well as have a perverse impact on the adoption of electric vehicles.
Current plans would mean company car drivers opting for an electric vehicle will be paying 16% in Benefit in Kind (BIK) taxation next year, followed by 2% the year after, with taxation in subsequent years not yet published. This causes a great deal of uncertainty for drivers and fleet managers, who may decide to opt for perol or diesel, as tax levels for these options have been less volatile and easier to predict in recent years.
Furthermore, some motorists may opt to drive a 'grey fleet' vehicle rather than face the additional taxation and uncertainty of a company car option. On the whole these vehicles are older and more polluting, as well as provide less tax revenue for the Treasury.
BVRLA members own, operate or manage almost 5,000,000 cars, vans and trucks. They are responsible for nearly 50% of all new vehicles registered each year. As of the third quarter of 2018, 10% of company car registrations were plug-in electric, compared to 2.6% for the market as a whole. With frequent, well managed fleet replacement cycles and a rational, cost-focussed approach to selecting new vehicles, BVRLA members can provide the best route for getting ultra-low and zero-emission vehicles on the roads as quickly as possible.
With the right CCT regime, BVRLA members can:
- Improve the uptake and affordability of low-emission, Clean Air Zone-compliant vehicles;
- Accelerate the adoption of plug-in electric vehicles;
- Support the UK motor industry to continue to be a key driver of jobs and economic growth;
- Deliver a managed transition away from fossil fuels that minimises any financial impact on businesses and individuals;
- Provide a long-term, sustainable and environmentally-focused tax base that continues to support government revenues as well its policy objectives.
Ahead of the 2018 Autumn Budget, the BVRLA has 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 show 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 will 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 current plans the BIK rate for electric company cars soars 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 would instead stimulate 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, has caused 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 address 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 is 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 has 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.
These discussions culminated in a written submission for consideration ahead of the autumn Budget. The calls were supported by over 40 Parliamentarians as well as various businesses and a consortium of environment, transport and motoring organisations. A copy of the full submission is available to read online.
The Chancellor made his Budget statement in Parliament on 29th October 2018. The BVRLA was disappointed to note the announcement made no reference to either bringing forward the 2% ULEV company car BIK rate nor did it publish future planned tax rates for CCT as called for in the association's submission. Despite this news the BVRLA will continue to work with policy makers to identify ways to make the CCT regime fairer and more sustainable for drivers and fleet managers.