Fleet taxation Analysis: Tax changes for 2015 hit low-CO2 models hardest
24 March 2015
The new 2015/16 company car tax rates means all fleet drivers will now have to make a monthly contribution, zero-emissions cars included, reports Tom Seymour
It's that time of year again. The Government has set out its stall ahead of the election with its 2015 Budget and the goal posts for company car tax will be moving as of 6 April.
Most company car drivers will be hit with a 2% hike on the amount of money they pay in benefit-in-kind based on the CO2 output of their chosen vehicle (see 'Company car tax BIK rates table).
One of the biggest changes with the move to the new 2015/16 BIK tax payments this year, is zero-emission vehicles coming into the taxman's sights for the first time. It means every company car driver in the UK will be paying BIK, regardless of the car they choose. Electric vehicles, which were previously exempt, will face a 5% BIK rate. It's still the lowest rate, but it means that incentive of not having to pay company car tax is now lost to EV owners.
It essentially groups zero-emissions vehicles and vehicles with emissions from 1-50g/km into the same 5% BIK band for the first time. The top BIK rate also jumps from 35% to 37% this year for the most polluting models. Fleets should also be aware that the CO2 threshold at which the 100% write-down allowance applies will fall from 95g/km to 75g/km.
While there is no change for models such as the Outlander PHEV plug-in hybrid this year (annual BIK remains at £332 see 'Fleet model BIK comparison' table, below), models like the top-selling EV Nissan Leaf will see owners pay out for the first time. It would mean an additional £285 a year to the cost of ownership when running a Leaf or £23.75 a month, compared with paying nothing last year. It's not exactly going to bankrupt a driver, but it's still an additional cost.
Unfortunately for the fleet industry, its heartland of sub-130g/km models are also being hit - more so than
the more polluting models on the market too.
Colin Tourick, Grant Thornton professor at the Centre for Automotive Management, University of Buckingham Business School, says: "Ironically, from 6 April the driver of a higher-CO2 car will see their tax bill rise by a lower percentage than the driver of a lower-CO2 car.
"For example, someone driving a 200g/km CO2 car will see their multiplier rise from 33% to 35% - a 6.1% tax increase - whereas someone driving a 100g/km car will see their multiplier rise from 13% to 15%, a 15.4% tax increase."
Tourick says the drivers with the least polluting cars will be hit the hardest. Cars emitting between 51g/km and 75g/km CO2 see an 80% increase with a rise from 5% to 9%.
Nigel Trotman, strategic fleet consultant at leasing firm Alphabet, advises fleets to be prepared for
He says: "Fleet managers need to get their heads around the changes themselves and then communicate to drivers what they can expect this year.
"The tax changes for zero-emission vehicles and those lower down the tax banding shouldn't come as a surprise," he continues. Trotman admits the changes to zero-emissions company car tax will make the most noise as it's the biggest change, but the actual impact on the market will be minimal.
He says: "There may be the expectation with some drivers that took electric vehicles that they would not have to pay company car tax, but it shouldn't have a massive impact.
"They have chosen an electric vehicle because it suits their lifestyle and there are still many benefits financially to running an electric vehicle."
Chris Chandler, principal consultant at Lex Autolease, said that generally, those drivers that have chosen a plug-in vehicle tend to have done a lot of research about ownership and the cost implications involved, rather than just relying on tax savings.
He says: "There is still a tax advantage to running low-emission vehicles. The benefit is gradually being eroded.
"I don't think moving to the 5% BIK bracket will slow EV sales, but as more and more ultra low-emission vehicles hit our roads, in theory the scale of production will lower the overall price and balance things out, even if incentives are gradually reduced. The bottom line is, if the Government wants people to adopt this technology, it's got to make financial sense for people."
There is some good news for drivers, but they will have to wait another 12 months: the 3% diesel supplement will be scrapped in April 2016, which means all diesel and petrol models will be charged at the same BIK percentage rate from the 2016/17 tax year.
As a result, some models will actually be liable for less tax next year. For example, a Ford Focus diesel owner will pay £780 a year in BIK over the next 12 months, but their bill will actually drop to £734 the year after.
The tax rates up to 2019/20 have now been set out, as of the 2015 Budget, so it helps fleets to plan ahead for the future and for drivers to pick their vehicles knowing what their BIK contributions will be over their ownership period.
Tourick said: "To be fair, we have known about these increases in BIK rates for years and drivers changing their cars in the interim have been able to do so in full knowledge of the BIK tax they would be paying in 2015/16. Nonetheless, it does seem odd that the Treasury decided to impose a disproportionately higher tax bill change on the drivers of lower-emission cars in 2015/16."