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Fleets hit for an extra £1.5bn in Budget 2012

Date: 29 March 2012

Chancellor George Osborne has handed company car operators and drivers a £1.5 billion tax increase over the next five years through hiking benefit-in-kind rates and fuel charge payments for drivers, and the tightening of capital allowances for companies.

Although the industry was braced for rises in the cost of operating or receiving company cars, the 2012 Budget contained a number of nasty surprises, not least the hefty hike in company car drivers' BIK rates for three years from April 2014, which alone are budgeted to bring the Treasury an extra £845m.

Meanwhile, changes to the fuel benefit allowance for people given free private fuel by companies should raise an additional £35m in revenue as the Government seeks to discourage the practice, while another £575m is budgeted to find its way to the Treasury after significant changes to the capital allowance regime.

It was the most significant Budget for business car operators since the change to a CO2-based tax system a decade ago, and the amounts involved signify the state of Government finances.

"In my opinion it's harder than we would have expected, but when you look at the way the economy is going they've got to get money wherever they can," said automotive tax expert David Rawlings of BCF?Wessex. "They are raising a lot of money from the sector. Yes, the Government has been heavy but look at the economy and you can see why they have done it."

But Julie Jenner, chairman of car operators association ACFO, said the tax hikes were to be predicted. "I don't think we've been unduly hard done by; most people expected it," she told BusinessCar. "Most fleet operators and company car drivers will have been prepared for this. You can still do an awful lot by making the right choices to drive greener vehicles, even with these increases."

Rawlings agreed, warning that the downbeat reaction from some in the industry could be harmful. "We've got to be very careful. There's a lot of doom and gloom post-Budget, people seem really gloomy, and we've got to be careful we don't talk the industry down," he said. "There's still a lot of great value out there from a tax perspective. Company car drivers will be hurting at the back end of their contract and they've got to choose carefully next time."

Rawlings predicted that the changes won't greatly alter the number of company car drivers, although some segments such as performance hatches, MPVs and 4x4 vehicles may be more difficult to find on company car policies. "Company cars could become a bit more uniform," he said.

"You can say the Budget is rather aggressive, but at the lower end there are still cars that make sense," he told BusinessCar. "Especially at the lower end, there are great ways to remunerate your employees."

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