BIK TAXATION: Businesses in for a shock as benefit-in-kind rules change
02 April 2012
The Government's decision to shift the BIK thresholds from this April means employees and employers alike are facing greater expenditure. Jack Carfrae examines the impact, which for some companies could be very significant
It's no secret that the goalposts for company car taxation are about to change with the arrival of the new financial year, but some businesses are still in for a shock.
The Government's tactics to continuously put the squeeze on emissions levels will render a number of vehicles that are currently considered clean, economical and cost-effective choices by the fleet community significantly more expensive for companies and employees alike.
The most hard-hitting impact for many will be the removal of the qualifying low-emissions car (QUALEC) 120g/km threshold at the turn of the financial year in April. Vehicles emitting between 99-120g/km stand to be most affected by the move, with increases in BIK of between 1% and 5% depending on the exact CO2 figure. Cars with emissions levels of 120g/km will see the single biggest increase, rising from their current BIK figure of 10% to 15%, with the addition of the continuing 3% penalty for all diesels. Employers will also be hit with an increase in National Insurance Contributions as a result, so they can also expect to be paying more per vehicle.
Mike Brazel, specialist consultant at Leaseplan, makes it plain that companies and their staff are in for greater expenditure in the immediate future. "In the short term, there will be added cost to the industry. Vehicles emitting between 99-120g/km will be most affected by the changes as they will lose between 1% and 5% of the 5% QUALEC discount that impacts both employer National Insurance Contributions and the employee benefit-in-kind payment discount."
According to Brazel, vehicle manufacturers that have used the 120g/km benchmark as their primary hook for sales stand to be hit the hardest by the changes, but until a new wave of models arrives that can duck under the new regulations, some business car users are likely to revert to buying vehicles on the strength of the product and its value for money, rather than basing their buying decision on the headline emissions figure.
Regardless of whether its considered good or bad news for the industry, some analysts believe that the loss of the QUALEC discount has been coming for some time and that companies should not be surprised.
David Rawlings, director at Business Car Finance, which specialises in company car taxation, claims that the abolishment of the discount is a sign of the Government's efforts to take a broader view of corporate vehicle tax: "What the Government is trying to do is look at the bigger picture, as QUALEC is now outdated and the Government is going to use tax as its big tool to influence behaviour. The message is still to buy cars that are as clean and green as possible and we'll make it worthwhile to you."
Alastair Kendrick, tax director at accountancy firm MHA MacIntyre Hudson LLP, agrees, and claims that QUALEC has now served its purpose, although salary sacrifice customers are likely to be the ones that are most affected by the new rules: "The abolition of QUALEC should not be a surprise to the industry - it was only a temporary concession to get the industry motivated to producing lower CO2 emission cars. The impact of this is it will hit the volume of company cars that are sold and I guess particularly salary sacrifice arrangements, which are targeted at the type of vehicle within the QUALEC range."
The cap doesn't fit
While the cleanest vehicles on the market will remain unaffected and attractive to fleets, HMRC's decision to move the 10% tax threshold down from 120g/km to 99g/km is likely to alter the emissions caps that have become common among many fleet managers. The current taxation system favours CO2 caps in the region of 100-120g/km and allows firms to take full advantage of the 100% first-year capital allowances, under 111g/km while caps of 160g/km allow companies using contract hire to avoid the 15% loss of tax relief.
Mike Moore, director at Deloitte Car Consulting, says that such caps will be made largely redundant for businesses when the new rules kick-in: "Many businesses use 120g/km as the cap, particularly for perk cars and cars available under salary sacrifice schemes, as it lowered the employers' National Insurance bill and the employees' tax bill.
"As the 5% jump between 120g/km and below to 125g/km is removed from April 2012, the use of a 120g/km cap has less relevance for employers."
All of the industry figures that BusinessCar spoke to believe that the regulation changes have been sufficiently publicised by the Government, so employers should
be aware of the cost implications come April. The availability of whole-life cost figures also goes some way to making business car drivers aware of the changes, but there is still a danger that companies will be caught unawares. Neither is there is any guarantee that employees will have been alerted to potential increases in BIK by their firms, so problems are expected. Company car drivers that are unaware of the changes and have recently taken out an industry standard three- or four-year lease on a vehicle emitting 115-120g/km are in for a nasty surprise. According to David Rawlings, the new regulations have the potential to "shock a lot
Richard Schooling, chief executive of lease firm Alphabet, concludes: "My positive belief is that people are conscious and aware, though on the other hand, the driver and general company car population might not be as aware as their fleet manager. We may see a bit of surprise from employees who end up paying more tax. But it's the taxation system we live in."