Four out of 10 drivers to be hit by lower CO2 threshold

Lex Autolease expects more than four out of 10 company cars will result in increased fleet and driver costs when the qualifying low emissions car (QUALEC) threshold of 120g/km is abolished in April.

Data gathered by the UK’s largest leasing company reveals that 45% of new car orders will fall into the 100g/km to 120g/km tax band and be hit by the ‘QUALEC Effect’.

These vehicles, as well as any existing company cars emitting more than 99g/km of CO2, will soon be subject to a higher tax burden.

The future cost increase is attributed to HMRC’s decision to lower the 10% tax threshold from 120g/km to 99g/km in April 2012, as part of a revision to the benefit-in-kind (BIK) system for company cars.

Lex Autolease calculates that only 8% of cars ordered will qualify for the new 10% company car BIK tax band (76g/km to 99g/km).

So, despite recent efforts by manufacturers to launch sub-120g/km vehicles and fleets’ or drivers’ decisions to adopt these, many will face a company car tax increase with an adverse impact on employers’ National Insurance Contributions (NIC) as well.

Based on a fleet of 500 vehicles, comprising a mix of Volkswagen Golf 1.6TDI 105 Match and BMW 318d SE models emitting 119g/km, employers’ NIC costs will rise by more than £60,000 a year.

An employee driving the same BMW 318d will be hit with a yearly BIK rise of £216, if they are a 20% taxpayer, and £432 at the 40% rate.

Paul Lippitt, principal consultant at Lex Autolease, said: “No fleet is likely to escape the QUALEC Effect, unless they are operating an entirely sub-99g/km policy and there aren’t many of those about.

“We’ve raised the issue ever since the new tax thresholds were confirmed at the last Budget, but we suspect that a large number of firms have not yet taken pre-emptive steps to mitigate the impact and inform their employees.

“Senior management may be less concerned if they have recently taken delivery of a low-emitting BMW 5 Series or Volvo S80 and can stomach the additional BIK, but the cost increase will come as a shock to middle and junior managers.”

From a corporate perspective, larger fleets will notice a measurable increase in costs.

Lippitt continued: “Most lease periods run over three or four years, so there is no getting away from the impact in a hurry.”

The thresholds will continue to reduce in 2013/14, which will result in additional increases in costs.

Lex Autolease says that fleet and drivers seeking to avoid this April’s tax changes need to consider sub-99g/km cars, or even sub-95g/km, to prevent the next threshold change in April 2013.

Currently, there are more than 200 model/trim levels outputting exactly 119g/km, which will be taxed at 14% for petrol and 17% for diesel models instead of 10% and 13% respectively in April 2012, rising to 15% and 18% in 2013.

In this category, businesses and drivers will find perennial executive favourites like the BMW 520d (EfficientDynamics), BMW 318d and BMW 118d.

Major workhorses like the Volkswagen Golf S 1.6 TDI 105 Match and Volkswagen Passat 2.0 TDI BlueMotion Tech also fall foul of the new thresholds so many essential users will naturally lose out.

Lippitt concluded: “Companies need to review their fleet policies and develop plans to adopt sub-99g/km models, which will support the driver’s need to manage BIK costs and the corporate objective of cost reduction.”