Chancellor‘s Spring Statement fails to clarify Company Car Tax

 

Changes announced in the Chancellor’s Autumn statement will go ahead next month. These include a two percentage point rise in company car benefit-in-kind tax for models with carbon dioxide (CO2) emissions above 75g/km - rates for cars with emissions of 0-50g/km increase by four percentage points and those with emissions of 51-75g/km by three percentage points (see table below). In addition April will see, the current company car benefit-in-kind tax diesel supplement will increase from 3% to 4% at the same.

A new Vehicle Excise Duty supplement on all new diesel cars first registered from that date. It means that the First Year Rate of Vehicle Excise Duty will be calculated as if cars were in the band above. CO2 emission thresholds for capital allowances on cars bought outright by companies will tighten from April 1.

The new rates are: Vehicles up to 50g/km (reduced from 75g/km): Companies can write down the full cost against their taxable profitsVehicles emitting 51-110g/km (reduced from 130g/km): Companies can write down 18% of the cost of the car against their taxable profits each year, on a reducing balance basisVehicle above 110g/km: Companies can write down 8% of the cost of the car against their taxable profits each year, on a reducing balance basis.

The CO2 threshold for the 15% lease rental restriction is linked to the threshold for capital allowances for business cars, so the rate will be reduced from 130g/km to 110g/km from April 2018. It means that companies that lease can only deduct 85% of any rental payments against their taxable profits on cars with emissions above the threshold.

Following the spring statement fleet decision-makers and company car drivers are none the wiser on why company car benefit-in-kind tax on cars with emissions of 0-50g/km of CO2 will rise from 9% in 2017/18 to 13% in 2018/19 and 16% in 2019/20, before reducing to 2% (depending on electric mileage range) in 2020/21. As the government continues to call on businesses to include plug-in vehicles on their fleets, businesses have called for the tax hikes to be reversed immediately and not delayed until April 2020 to encourage demand.

The British Vehicle Rental and Leasing Association (BVRLA) has said in a letter to Mr Hammond “current tax rate was putting the brakes on new electric vehicle registrations from company car drivers, who are postponing the jump to electric until the tax regime offers an incentive”.

Lack of clarity about company car benefit-in-kind tax thresholds beyond 2020/21 is hitting four-year vehicle replacement cycles hard. The picture is further complicated by the fact that the government announced in the November 2017 Budget that from April 2020, company car benefit-in-kind tax - and Vehicle Excise Duty - would be derived from CO2 figures produced under the newly introduced Worldwide harmonised Light vehicle Test Procedure (WLTP), for which there is little data at the present time.

The BVRLA called for company car benefit-in-kind tax beyond 2020/21 and said in its letter: “Many people are abandoning their company car and making their own arrangements due to uncertainty over what their tax bill will be in the future.”

The BVRLA’s sentiments were echoed by Claire Evans, head of fleet consultancy at Zenith who said, “We support the BVRLA’s call for clarity on company car tax rates beyond 2020 and expect to see them in the Autumn budget.”

Matthew Walters, Head of Consultancy & Data Services at LeasePlan UK, commented on the consultation on Vehicle Excise Duty for vans:“We knew in advance that the Spring Statement would be light on policy. However, the Chancellor did make one announcement that will be of particular interest to fleets: a consultation into lowering the rates of Vehicle Excise Duty for the cleanest vans.

“This is welcome news. As a founding member of the EV100 initiative, LeasePlan is committed to low emissions. We strongly believe that vans should be part of this conversation as much as cars."

On Company Car Tax, Matthew Walters said: “Philip Hammond has again failed to announce the rates of Company Car Tax for 2021-22 and 2022-23. Many fleets and employees are now entering into 48-month leases that will stretch into those years, so they need clarity as soon as possible. The Chancellor must not fail to publish these rates in his Autumn Budget – if not before.”

David Brennan, CEO of Nexus Vehicle Rental, was also hoping for more clarity on Company Car Tax than was provided in the spring budget: “Fleets are still seeking the clarification of Company Car Tax (CCT) rates for 2012-22 and 2022-23. Many fleets will be entering contracts that stretch into these years and urgent clarification is needed to define these rates, which will affect fleet decision making and purchasing. In the meantime, this may create opportunities for the rental sector with medium and long-term rental now seen as an attractive stopgap.”

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