BUSINESS directors are selecting cars for their fleets that will qualify for lower benefit-in-kind tax bills under next April's emissions-based company car tax system.

New research by the Institute of Directors found that almost half the respondents intended to alter the composition and structure of their fleets by taking into account car emissions and engine size. In addition, nearly one in five of the businesses questioned expects to reduce the size of its fleet, typically by offering staff a cash allowance in lieu of a company car.

The survey found:

  • The majority of UK fleet cars are under three years old, and over 70% of companies replace them every three years
  • 69% of companies allow their employees free choice of a company car within a given price range
  • Only 3% of respondents have environmentally-friendly vehicles
  • The number of employees with company cars is expected to drop from 30% to 22% over the next three years

      The survey suggested that the tax changes will reduce the number of employees with company cars from 30% to 22% over the next three years, while the number of employees receiving car allowances will rise from 4% to 11% in the same period. This conflicts with forecasts by the Government and Inland Revenue that the new tax system will lead to a net increase of 200,000 company cars to the UK fleet parc.

      Richard Baron, deputy head of policy at the IoD, said: 'The survey has highlighted that the Government's policies seem to be working, especially among larger companies, with a swing away from company cars and changes in fleet compositions.

      'The Government's aim was to discourage the use of unnecessarily large cars, but it should take note of the fact that 70% of company cars are considered to be necessary for business use, and not just perks.'

      But Rob Thompson, senior tax manager in HLB Kidsons' Motor Group, which jointly carried out the survey, said the new tax regime did not sound the death knell of the perk car. 'I doubt we have seen the end of the gas-guzzling perk car since unless drivers are doing more than 2,500 business miles a year they are likely to be better off under the new regime,' he said.