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BENEFIT-IN-KIND: Tax dodgers

Date: 09 June 2011

Consciously ignoring the effect BIK tax-band changes can have on a business can be costly, writes Rachel Burgess

Changes to benefit-in-kind tax bands next year could cost firms an average of £300 more per year per car for a lower medium sub-120g/km CO2 £19,000 model - but despite the sums involved there are concerns that fleets are ignorant of the financial impact the changes will have on their business.

From April 2012, firms sticking with a sub-120g/km car rather than dropping to a sub-100g/km version will lose around £25 a month (see table below). However, David Rawlings from Business Car Finance, says he is still "surprised at how few people can calculate tax". There is also a recurring attitude of "buy it now and not worry too much about the future" in the fleet world, he adds.

"In our experience, many fleet managers and users tend to only look at the tax implications when policies are set or when a new vehicle is being ordered," says Toyota fleet marketing manager Jon Hunt. "Even then they may only consider the current year impact rather than for each individual year of the term and not necessarily look at all the tax implications such as write-down allowances or National Insurance payments."

Rawlings thinks that while many firms choose to ignore these issues, as many are simply ignorant. Mike Moore, director of Deloitte Car Consulting, agrees: "Those who have based policies on taking advantage of the lower BIK charge for cars with CO2 emissions of 120g/km or less need to plan for the percentage applied to the list price jumping by up to 5% in 2012."

He adds: "Cars ordered or on the fleet now are likely to still be around from April 2012, therefore businesses need to budget for the increased Class 1A NIC charge and should consider communicating to employees the increase in their tax bill."

But Pricewaterhouse Coopers' director of infrastructure operations, Steve Sherwood, thinks there is an increasing awareness. He says the way PwC runs its scheme ensures information about both tax and environmental matters are made available to drivers. However, Rawlings says employees often aren't incentivised to choose lower-emission cars; so costs rise: "Firms need to work with employees to make sure costs are kept down."

Rawlings continues that many manufacturers only demonstrate a car's costs for one year rather than what will happen in future years. But Toyota's Hunt says: "We have always supported companies to understand how they can achieve the lowest possible tax without compromising on vehicle choice or performance and we will extend this support later in the year with seminars and a tool to help analyse the true financial costs of running a vehicle."

Lex Autolease's principal consultant Paul Lippitt recommends that those who manage fleets should review policies now and determine whether it is worthwhile changing their vehicle choice (both essential user vehicles and status user benchmark cars) to introduce cars with even lower CO2.

"The challenge is that while there is a broad range of cars which fall below 120g/km, there are currently only a handful that fall below 99g/km which would be considered suitable for vehicle fleets. This position is likely to change over time as manufacturers respond to the challenge, but note that the new starting threshold reduces even further to 94g/km for the tax year 2013/14."

According to Leaseplan, fleets know BIK changes are important, "and, as with earlier incarnations, will be factoring the latest tax announcements into their policies in a variety of ways".

A spokesman says: "There is very little they can do to influence the BIK cost increases for vehicles already 'on fleet', but for many, the changes would not have come as any great surprise - it's more of the same, in fact. Existing car policies should have already been pushing behaviours to lower CO2 levels in any event.

"It is important if BIK changes were to be disregarded, the perceived value of driving a fleet vehicle could decline significantly in the eyes of an employee, who would bear the main burden of increased rates on vehicles with higher emissions."

Both Lex and Leaseplan, along with the large majority of leasing firms these days, advises organisations to adopt a whole-life costs approach to car policy design, which takes account not only of vehicle rental costs, but also disallowed VAT, employer's NIC, consumption and lease rental restriction (if applicable).

Lex's Lippitt concludes: "In this way, all planned costs that vary with the vehicle choice are considered, and then the most efficient vehicles can be selected, on which the new car policy can be based. This can work for all company cars across the vehicle fleet."