It’s a case of give and take for fleets when the new taxation laws come into force from April. Jack Carfrae details the changes and explores how businesses can prepare themselves.

It’s the same story every April. The new financial year kicks in, the Government’s tax boundaries shift and business car operators suddenly find they’re out of pocket.

The tax man has never been popular, but to the Government’s credit, it publishes the legislation well in advance, so businesses always have the opportunity to ready themselves for any changes – and either soften or avoid them – if they’re switched on.

With the hour of a new financial year almost upon us, it’s high time fleets prepared themselves for the changes that are about to come.

The good news, for drivers at least, is that benefit-in-kind isn’t going to see much of a hike. Last year’s taxation changes marked something of a blow for businesses, and employees in particular, as the removal of the qualifying low-emissions car threshold (QUALEC) pulled the rug from under a lot of core fleet models. Its absence meant they could no longer cash-in on sympathetic BIK rates for vehicles in the 99-120g/km bracket, leading to anything up to a 5% BIK band rise.

This year, there is a slight increase in cash going to HMRC’s coffers, but it’s hardly enough to worry about, as Simon Down, senior manager at Deloitte’s car consulting team, explains: “For company car tax there may not be a really noticeable change. If you’ve got a £25,000 car and you’re a 40% tax payer, you may be paying another £5 or £10 a month. That isn’t a tremendous cost increase; however, it is set to continue rising.”Writing down

It’s a different story for employers and leasing companies in 2013/2014, though. The biggest and potentially the most costly change is the new writing-down allowance.

Ian Hughes, commercial director at leasing firm Zenith, details the shift: “The only game in town is the change to capital allowances. [the first-year allowance] is being reduced from 110g/km to 95g/km. There are now two new bandings – high and low – 130-160g/km and 130g/km and below. That’s the new universe.” 

This means that as of April the first-year allowances for car purchases will drop from 110g/km to 95g/km, vastly reducing the number of available models that qualify for them.

“Cars of 131g/km and above will typically increase on their monthly rental by around £12.50 per month,” continues Hughes. “Those emitting 111-130g/km will be unaffected, which is good news. Cars emitting 110g/km or less are also going up by approximately £11.50.”

April also heralds the end for the 160g/km emissions limit adhered to by many fleets, which until now, allowed them to take advantage of the full 18% writing-down allowance. That will only be applicable to cars emitting 130g/km or less. Those emitting more than 130g/km will only be eligible for an 8% writing-down allowance.

 

Fuel benefit

The fuel benefit charge is on its way up, too. The multiplier will increase from £20,200 to £21,100, which will subsequently up the driver’s tax and the employer’s National Insurance Contribution, in another move to discourage the provision of free fuel. 

Big changes are also afoot for the leasing companies next month. Regardless of how low a vehicle’s emissions are, leasing firms will no longer be able to benefit from the first year’s allowance, the upshot of which is a likely increase in rental costs to their customers.

“The removal of the 100% writing-down allowance for leasing companies is likely to have some impact on pricing,” says Down. “We’ve not yet seen exactly how this will play out, and a lot of leasing companies have obviously kept it close to their chest. They may pass on the full cost to their customers, they may absorb it, or there might be a hybrid of the two. There’s no clear view on how they will do it.”

The new legislation applies only to cars acquired after 1 April. Where problems could arise is if deliveries or lead times are delayed, in which case fleets should review their contracts.

Hughes surmises: “It’s a legislative change, so it applies to everyone. Some people might wish not to present it, but they will be affected by the way they fund that car.

Other organisations might be deciding to absorb it and take a loss, but then they may offset it in another way.”

Future-proofing 

The next financial year’s tax rules are yet another wake-up call to fleets that still haven’t cottoned on to the Government’s drive to get company car drivers into cleaner models. Ignore it at your financial peril, but don’t consider it a cost inevitability because there are ways to duck under the changes and adapt to an altered tax infrastructure.

It’s an over-used phrase in corporate car circles, but whole-life costs really are the answer. That’s the consensus from the industry and those in the know about vehicle taxation.

Deloitte’s Simon Down, senior manager on the firm’s car consulting team, says: “Our mantra has been around whole-life costs and making sure you pick everything up. You can make your choice based on that and have certain budgets and still allow flexibility for employees in their car choice, but you know you’re only paying for what you want to pay for.

“The alternative is trying to second guess which way the rules are going – you could implement a 120g/km cap, for example. But not many businesses do that. Some may want to be seen as pioneers and they might do it, but not many will.

“Future proofing is just down to whole-life costs. The rates are published so far in the future, so it’s easier to plan.”

Any business car operator worth its salt would do well to steer clear of old-fashioned procurement policies based on the likes of rental and P11D values. The advice is to operate a policy that is in tune with the direction in which emission-based taxation is headed, because it will self-police by offering cars that fit the bill and are cost-effective vehicles.

Zenith’s Ian Hughes, commercial director at the leasing company, advises: “Put a cap on the choice list for a maximum of 130g/km. That will prevent an affected vehicle from coming onto the system. You could also introduce incentives for drivers to take lower CO2 cars.

“We’ve been advising a lot of people to cap at 130g/km. We’ve even been saying to go to 120g/km. The only thing yet to emerge is a wider choice of vehicles below the 95g/km mark, but that will come in time.” 

 

Where is company car taxation headed?

Few are predicting much in the way of a change in the way company taxation is moving. The gradual intensification of benefit-in-kind and squeeze on CO2 output is a trend that will continue, but it’s also one the motor industry has responded to.

Zenith’s Ian Hughes, commercial director at the leasing firm, explains: “In 2009, average CO2 was about 146g/km; in April 2013, it will be something like 120g/km or 118g/km. In 2016, it could be 105g/km. That’s a prediction of where we think we’re getting to. BIK is changing but emissions are falling.

“We’re in a good place. I don’t anticipate that the Government would make a big change to the tax structure. There are two million company cars on the roads – that’s quite a lot of NIC and BIK.”

Another seed of change worth noting is the long-awaited removal of the 3% diesel BIK surcharge in April 2016, which should further increase the appeal of diesel vehicles.

Where a step change is expected is with the Government’s current policy on ultra-low emission vehicle taxation in 2015. As it stands, the 5% rate of BIK for sub-76g/km vehicles and 0% for zero-emitting vehicles is set to leap to 13% in two years’ time, but rumblings from Westminster suggest that a U-turn might be on the cards.

“I haven’t seen anything yet in terms of changes around ultra low-emissions vehicles but this seems to be the most common prediction,” says Deloitte’s Simon Down, senior manager on the company’s car consulting team. “There may be something to soften the effect of the withdrawal of the 0% company car tax rate in April 2015.”

Rumours have also been circulating about a change to VED, a review of which was announced in the 2012 Budget and the Autumn Statement. The 2013 Budget later this month should hold the answers for both elements.

It stands to reason that a whole-life cost policy and low-CO2 vehicles are the ticket for low tax bills, but the idea of mobility bundle deals for employees is a tax-efficient future route if they work for your business.

Ashley Sowerby, managing director of fleet software firm Chevin, reckons savvy companies will offer a transport package in future, with a combination of car access and public transport perks depending on what their employees need, which could cut tax bills.

“This could see, for example, city-based drivers having low-emission ‘city’ vehicles as their allocated vehicle, combined with a mobility capability such as bus/rail passes, and flexible access to a larger vehicle – either from a company pool or third-party rental fleet – for those occasions when travelling further distances or more capacity is required.

“If these areas can be streamlined we will see a significant drop in emissions and therefore tax, while retaining if not improving on the benefit from receiving a company car.”