While much focus has been placed on last week’s announcement of changes to Benefit-in-Kind tax for pure electric vehicles, the changes for higher-CO2 vehicles registered from April 2020 onwards also warrant attention.
So says Gary Smith, managing director, Europcar Mobility Group UK, as he looks at the ramifications of the announcements.
The changes are being made by HM Treasury as a result of its review into the impact of the shift to using the Worldwide harmonised Light vehicles Test Procedure (WLTP) to test all new cars from September 2018.
A new, more accurate testing procedure, WLTP is already bringing significant increases in reported CO2 figures – averaging 20-25% higher than under the previous NEDC regime and in some cases up to 40% higher, as mentioned in the review.
Intended to mitigate this, the BiK changes replace the previous 2020/21 rates for vehicles above 1g/km with two new tables that also bring light on rates for 2021/22 and 2022/23.
This includes a table covering those drivers of company cars registered after 6 April 2020 – all of which will have been tested on the more stringent WLTP cycle. As such, these drivers actually get a two percentage point tax cut on the former rates for vehicles from 1g/km upwards, falling to a one percentage point cut in 2021/22 and then revering to the 2021/22 rate in 2022/23.
In response, Europcar’s Gary Smith has said that while the 2% reduction is positive news, it is perhaps mitigating against what could be seen to be an excessive tax increase rather than actually delivering a cost saving for fleets.
Echoing comments made by ACFO about the potential for fleets to defer vehicle replacement and wait for the new lower tax rates to kick in, Smith added: “Given the potential BiK incentive, I’d expect to see a lot of people delaying changing their vehicles until after next April.”
However, he said there may be an additional motivation behind this for businesses who use diesel vehicles.
“At present, diesel vehicles that aren’t compliant with RDE2 regulations incur an additional 4% tax surcharge due to the additional NOx emissions. However, day-by-day manufacturers are releasing more and more vehicles that are compliant and therefore avoid this charge. So, waiting until April may mean having access to vehicles that do not incur this charge. As a consequence, I expect there will be increased demand for temporary, flexible solutions such as mid-term rental, giving drivers access to the latest motoring technology rather than keeping hold of older vehicles that have reached the end of their cycle.”
Smith also warned that while the 0% BiK tax on pure electric vehicles may be the catalyst for many businesses to make the transition, a lot of firms simply aren’t ready to do so just yet.
He continued: “If businesses have electric ambitions they will probably be wary about committing to long term leases on petrol or diesel vehicles. Many lease contracts contain early-exit charges so if businesses sign up to a four, five year lease in April they’ll be locked into this even if their transport strategy evolves and they want to make the switch in one or two years’ time.
“Businesses committing to electric vehicles must also be wary of potential tax increases in 2023. While the Government has confirmed that BiK tax will increase incrementally by 1% each year up until that date, no certainty has been provided beyond then. Yet another reason businesses will be hesitant about committing to longer-term deals in case tax rates change while they are mid-lease, creating a potential financial headache for the firm and its employees.
“The other challenge for businesses right now is understanding just how effective electric could be for their operations. One way for fleet managers to assess the viability of electric vehicles without any commitment is through hourly hire off the street from providers such as E-Car Club. This provides a ‘right time, right place’ cost-efficient and simple way for businesses to begin to introduce electric to their mobility options,” he added.