Taxing decisions

Date: 29 October 2018   |   Author: Jack Carfrae

Wheel size, transmission and maybe roof rails. Until September, they were more or less the only items of equipment that affected a car's overall CO₂ figure and, on the whole, they didn't cause a huge amount of trouble. 

Options just got a lot more complicated, though. The Worldwide harmonised Light vehicles Test Procedure (WLTP) which has just upskittled the automotive industry is, once again, the culprit, as it dictates that a vehicle's CO₂ figure incorporates optional equipment that impacts weight and energy consumption. In short, load up a car with kit and you're potentially looking at more grammes per kilometre and a higher tax bill. 

For those unfamiliar with the process, Phil Stones, chief engineer for propulsion at Millbrook Proving Ground, explains how it works: "With the NEDC [the outgoing economy and emissions test], the test was always done around the base vehicle. 

"With WLTP, you do what's called test mass low, which is a vehicle with no options, and test mass high, which is the vehicle with all options it could be sold with; then you get two results. If a vehicle is somewhere between test mass low and test mass high, you get a CO₂ equivalent value that is effectively the mass of the options. So, if you have a vehicle that's fitted with 50% of those mass options, then the CO₂ result will be 50% between test mass low and test mass high."     

"The test itself now is longer in time, by 30 minutes, and distance, by 23.25km," adds Clive Buhagiar, head of commercial performance at Alphabet. "It's designed to closer replicate the urban start/stop driving that we all do more of nowadays, and features higher top and average speeds. 

"WLTP comes in for taxation in the UK from April 2020, so at the moment we're still using 'NEDC correlated' or 'NEDC 2.0' figures from the manufacturers - not full WLTP. These figures are calculated under WLTP conditions but then calculated back to an equivalent NEDC value. Each manufacturer is taking a different approach to how they handle NEDC correlated and the transition to full WLTP, so it's a complex situation."

As omnipresent as WLTP has lately been, it remains widely misunderstood. Senior industry sources have told BusinessCar that many fleets have never heard of it, which is often attributed to a near-total lack of communication on the government's part. "We ran a webinar in July and the feedback we got was amazing," says Ross Basnett, consultant at Arval. "Fleet managers were telling us, 'Gosh, I just didn't know about WLTP and the impact it was having.'"

As a result, there isn't much chance of the messages about options and taxation seeping through, and even those familiar with the new test and its ramifications admit it's hugely complicated. As a rule, though, any item of equipment that adds bulk and/or draws power should be considered likely to increase the vehicle's CO₂ figure from hereon out. 

"Typically, things like a panoramic roof or a tow bar will add one, two or three grams per kilometre of CO₂," adds Basnett. "The long and short of it is, the more options you specify on a vehicle, the higher the CO₂ rating and, therefore, from a fleet perspective, the higher the impact on whole-life cost and the higher the impact on the driver's BIK."

The effects are relative, too. Experts point out convertible/folding hardtop variants are likely to yield significant CO₂ increases over hatchback equivalents, as they are typically much heavier. However, if the vehicle is a hefty thing from the off, then a few extra options may not make a dent.  

"If you've got a very heavy base vehicle, then the impact of that mass option is proportionately less," says Stones. "If you've got something that's 200g/km of CO₂ as a base vehicle, and you add a few kilos, the impact percentage-wise isn't going to be as big - you might add 1g. But if you add 1g to a 100g/km vehicle, it looks like a lot more."  

Physical weight isn't the only factor, either. The temptation is to assume that any sort of electronic upgrade would have no effect, but it might if it saps power, especially with plug-in vehicles, according to Buhagiar. 

"There may be a number of options that are software-based and while these won't add weight - beyond simply the weight of the electronic hardware required - their energy consumption may have an impact on the range for a hybrid or electric vehicle."

Throw in the absence of anything concrete regarding benefit-in-kind policy beyond the turn of the decade, and the process of speccing a vehicle has become thornier than ever. The government is expected to reveal future company car tax plans in the 29 October Budget, but even if we get some long-term clarity, WLTP will need to bed in before fleets can really get to grips with it. As for choosing the appropriate vehicles and options, those in the know are advising operators to accept being in the dark, and simply pick the best models for the job, with the lowest possible emissions, without getting hung up on the current kerfuffle. 

"It is a nightmare, because there's a whole bunch of stuff that we don't know for certain and you're making decisions that will obviously affect you for 'X' years," says Nick Molden, founder and CEO of Emissions Analytics. "I'd suggest you should play it medium-to-long, and focus your decisions on the real-world performance of these vehicles, because if they're good in terms of fuel efficiency, CO₂ and NOx, it puts you in a good and defensible place if you're a big fleet, even though, yes, you might find yourself incurring a bit more tax here and there." 

As a further precaution, specifically to avoid models that could be slammed by future tax policy, Molden also believes fleets should "set a ceiling above which they are not going to allow their NOx or particulate emissions. You don't want to be making a choice that reduces your CO₂ by 5% but involves choosing a vehicle that has emissions five times over the NOx limit - because they're still on sale today. 

"All these dirty diesels won't finally disappear from the market until September next year. Today, you can buy a diesel car that emits 20mg of NO_X and one that emits 500, so you don't want to be going for one of those 500 ones just to save a bit of CO₂."

If there's an operational benefit to WLTP, it's that manufacturers have begun tiding up their ranges and reducing the number of individual items of equipment, favouring packs or just straight trim levels over optional odds and ends. From a fleet's perspective, that isn't a bad move, as it simplifies the procurement process and generates vehicles that are better acknowledged by the remarketing community - for example, trim levels and packs are issued with specific Cap codes, but one-off options are prone to getting lost and may add nothing to a used car's value. 

"It's caused a simplification for ranges, partly because manufacturers are just junking models they've been dying to get rid of for ages," says Molden, who claims WLTP has created an opportunity for OEMs to universally slim down their ranges without fear of a marketing backlash. "You simplify the number of optional extras or bundle them into packs to reduce the number of permutations you need to test, so there'll be fewer optional extras and more things will either be optional packs or standard equipment."

BMW is among the manufacturers that have notably slashed their ranges - BusinessCar reported that it had ceased production of a number of key variants, including the 320d Efficient Dynamics in March 2018 - while Seat has ditched solitary options in their entirety and replaced them with its Easy Move range, which is based solely on trim levels. 

"I don't believe it's possible for fleet managers - and particularly retail customers - to understand the impact of individual options on emissions and tax," says Basnett. "I think the manufacturers have recognised this, hence their move to simplification. It's going to be interesting for the premium manufacturers that tended to create quite a lot of their profit through additional, optional extras, but that's the way I see things going. 

"From a fleet perspective, I think simplicity is the key; it's better to understand exactly what you're purchasing and what the whole-life cost of those vehicles is going to be. As long as the model lines that are created have the right options within them - from a business user's perspective, typically sat-nav, comfort packages - that makes absolute sense. My personal view is that we may see things that could actually reduce CO₂ as individual options. So, for example, dual-clutch gearboxes can reduce CO₂, so we might start seeing those as additional extras."

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