What is the future of the company car?
The Government, HMRC and even the Committee on Climate Change want to shift the burden of taxation even further into the hands of company car drivers. The income tax levels paid by company car drivers have historically been linked to the emission standards of the company car they use. The Worldwide harmonized Light vehicle Test Procedure (WLTP) is set to replace the New European Drive Cycle (NEDC) as the standardised test for tax purposes from April 2020. These changes are proving to be problematic for fleet managers from big businesses to small business owners with company cars.
What Are The Changes?
HMRC have, since 2010, started to encroach more and more into the realm of benefit in kind (BIK) tax territories as they explore new avenues for tax increases. The company car is set to be affected by the WLTP emission testing standards as the NIC class 1 tax dues for employees will be linked to those WLTP emission testing results. This will start to propel fleet managers and SME owners into thinking about diesel alternatives in the coming years.
Employees have started to push employers for alternative means of funding company car purchases as the additional changes to salary sacrifice coming in April 2019 are a further pressure that will frustrate company car drivers already pressured by increased tax changes.
The new tax implications will come into force from 6th of April 2020 whereby the WLPT measurement for CO2 will determine the overarching cost in relation to the Vehicle Excise Duty (VED) and the company car BIK tax charges.
These new measurements will only count for cars registered after September 2017. Those registered before this date will continue to use NEDC as the measurement means.
What this means is that from April 2020, your CO2 measurements will be higher, and this will mean that your company car drivers will need to pay more – this has been stated categorically by the European Automobile Manufacturers Association (ACEA).
However, there is a long-term issue that fleet managers have queried, and it surrounds the Government’s inability to articulate post 2020/21 how the car and road tax calculations and the new WLPT measurement calculations will be measured going forward. This has caused some fleet managers and fleet sector leaders to query the planning/implementation of this major and impactful change to the company car sector. Some have even pressed the government to implement a transition period.
Fleet News spoke with LeasePlan, one of the UK’s largest fleet lease companies, who argued:
“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.”
Another major leasing stakeholder, Siemens, who has a UK fleet of 5,000 vehicles argues this could lead to a major “nightmare” for companies when employees begin to react negatively when their tax repayments change considerably. Siemens believes, “We could be left dealing with employees demanding the business compensates them for taking a four-year contract if it becomes unaffordable. 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.”
What Can I Do?
As these changes are still “up-in-the-air”, you need to begin by following what we know the Government will be implementing in 2020. The rules are already in place to use WLTP test procedures for vehicles registered after September 2018. Furthermore, January 1st, 2019 was the deadline for vehicle manufacturers to change to the WLTP figure when advertising commercial fleet vehicles in sales and marketing materials. The next step in the April 2020 implementation date – this is when the old NEDC is retired in favour of the more specific Diesel emission calculations favoured by the WLTP standards – this is what HMRC will use to calculate VED and car tax calculations when considering taxable issues relating to company car ownership.
There are other ways of reducing your liabilities in the short term. The last budget didn’t mention how the WLTP would impact VED and Company Car Tax liabilities until Spring 2019 after a Government review. In the short term, this creates huge uncertainty, but it does provide the opportunity to think about alternatives to diesel.
In 2018, according to Fleet News, electric car lease prices fell. Furthermore, company fleet managers are moving quicker than expected towards hybrid and electric cars with nearly 30% of fleet managers looking to replace diesel with hybrid and electric (although Petrol will undoubtedly take up to 70% of the remaining slack in the short to medium term due to the decline in demand for diesel-powered vehicles). However, the drive towards zero emission electric and/or hybrid vehicles is a behavioural shift that the new WLTP tax changes are designed to create. Therefore, by thinking electric and/or hybrid you could help reduce your liabilities whilst also helping to push company car ownership towards a brighter, greener future?
Why Not Call Prestige Business Management?
Prestige Business Management can help you navigate the myriad of issues that present themselves when considering the dynamics of company car benefits for businesses and staff alike. We can help businesses plan and execute company car tax strategies and help advise employees on the changes coming to WLTP emission calculations and how they could impact their tax affairs. We can help you strategize and deliver effective company car benefits whilst helping you to protect your overall tax liabilities. Why not call our specialist company car tax team on 0203 773 2927 to find out more? Or alternatively why not visit our business tax advice pages to find out how Prestige Business Management can help your business today?