1 October 2017

Budget company car tax hikes will trigger ‘rapid decline’ in perk, BVRLA warns Chancellor

Continuing increases in company car benefit-in-kind tax will mean a ‘rapid decline’ in employee take-up of the ‘perk’, the British Vehicle Rental and Leasing Association (BVRLA) has warned the government.

Continuing increases in company car benefit-in-kind tax will mean a ‘rapid decline’ in employee take-up of the ‘perk’, the British Vehicle Rental and Leasing Association (BVRLA) has warned the government.

The BVRLA, in its submission to Chancellor of the Exchequer Philip Hammond ahead of the Budget on 22 November, has urged the government ‘not to add further tax burden upon the company car market’.

Indeed, the BVRLA, of which Activa Contracts is a member, has called for company car tax changes warning that there was already evidence – the number of company car taxpayers reducing by 110,000 over the past decade – that year-on-year tax rises had driven employees into cash allowance schemes.

That in turn had triggered a rise in the number of ‘grey fleet’ vehicles – employees who drive their own cars on business trips – and those cars were invariably older and more polluting than newer company-provided models with ‘little or no oversight from the employer’.

What’s more, the BVRLA argues in its submission that company car demand should have increased in recent years as the UK economy grew following the 2007/8 recession.

It warns: ‘New car sales continue to fall as businesses and consumers put off commitment to major spending decisions. Successive Budget announcements have seen the overall tax take from the business motoring sector rise sharply and it is clear that they are now having a negative impact on average car CO2 emissions, which have risen year-on-year.’

Recently published BVRLA data suggested that average CO2 figures for newly registered lease cars grew to 111.8g/km in Q2 2017, up from 110.8g/km (+0.9%) from the previous quarter and up 0.7% compared to the same period in 2016.

The submission tells the Chancellor that the autumn Budget was ‘an ideal fiscal opportunity to help restore market confidence but importantly give a well-needed stimulus to boost the uptake of the greenest and cleanest vehicles. Our sector requires greater tax stability and certainty to flourish, both prior to and following the UK’s eventual withdrawal from the European Union’.

Mr Hammond said in the Spring Budget that the government was considering the ‘tax treatment for diesel vehicles’ against a background of air quality concerns.

But, the BVRLA in its submission warned of the ‘adverse political and economic harm of raising tax from diesel company car drivers. The vast majority of these employees are essential business users undertaking business journeys on the motorways and rural roads using the latest engine technology’.

It continued: ‘Employers operating company cars also ensure that employees only select the most suitable and fuel-efficient car, as they are responsible for the costs associated with all business trips. Punishing employers and their employees for using or selecting a diesel car would therefore be wholly inappropriate and grossly unfair. There is now a real danger that continued tax rises on this class of employees will result in a rapid decline in this type of benefit being selected by the employee.’

Consequently, the BVRLA tells the Chancellor: ‘We feel the government should take a fairer approach by looking at wider general taxation to help address any funding gap that may exist.’

To help reduce pollution levels from vehicles, the BVRLA has called for ‘a bolder step change’ to help boost sales of zero emission cars and vans.

As a result it recommends the government:

  • Brings forward the 2% company car benefit-in-kind tax band for zero emitting cars from 2020/21 to 2018/19 to help address the current decision of fleets and employees deferring the selection of electric cars immediately to avoid the penal nature of the current tax bands (13% in 2018/19 and 16% in 2019/20). The move, suggests the BVRLA, would stimulate demand for zero emission cars.
  • Introduces a 1% incremental rise in CO2 bands for 2021/22 (rates up to the end of 2020/21 have already been announced). This would mean that the 51-54g/km rate would move from 15% in 2020/21 to 16% and so on. The 2% band would remain unchanged for zero emitting cars and would stay in place for five years from 2018/19 to help support the new and emerging market.

The BVRLA also recommends that further consideration is given to providing incentives to the take-up of safer vehicles on UK roads. We would propose that the latest NCAP (European New Car Assessment Programme) vehicle safety ratings become the standard for any future company car tax incentive.

Additionally, ‘to provide business and individuals with greater certainty and time to undertake the major IT system changes required’, the BVRLA has called on the Chancellor to continue to use existing New European Driving Cycle (NEDC) vehicle testing CO2 values as the basis for vehicle taxation until April 2021. That, it said, would allow the market to work on a smooth transition and implementation of the new Worldwide Harmonised Light vehicles Test Procedure (WLTP) CO2 values from 2021/22.

Additionally, the BVRLA has called on the Chancellor in the forthcoming Budget to:

  • Review the Vehicle Excise Duty (VED) regime to encourage the selection of the ‘cleanest and greenest’ cars.
  • ‘Boost and stimulate’ commercial vehicle sales by introducing enhanced capital allowances for leased commercial vehicles and change VAT rules to allow full reclaim on electric vans with a payload of less than one tonne.