Company car drivers may be waking up to an unexpected tax bill in the next few weeks when they receive their first payslip of the new financial year.
The 3% diesel differential on company car tax will still be in effect, and the lack of petrol parity that was promised by the chancellor in 2012, and postponed last autumn, will be dawning on four out of every five company car drivers.
Leaseplan, the second largest leasing provider in the UK, was critical of the Government’s handling of its decision to postpone the removal of the 3% surcharge.
Matthew Walters, Leaseplan’s head of consultancy services, told Fleet News: “The way the Government used the emissions scandal as a reason for postponing the removal of the surcharge was dreadful.
“The cynical view on it would be that the politicians looked at the £1.4 billion they would lose out on company car tax and saw that fleet drivers were an easy target. They waited until they won the election to deliver the bad news in the Autumn Statement.
“The really sad thing is that company car drivers are getting used to being treated like this. I would urge Mr Osborne to use caution because fleet drivers are important for our economy and at the moment he’s treating them like cash cows.”
George Osborne announced he was keeping the 3% diesel surcharge for a further five years in the Autumn Statement, last November.
It means about 750,000 company drivers, based on the latest figures from HM Revenue and Customs (HMRC), will end up paying more benefit-in-kind (BIK) tax than they had originally planned from next month (April) and then in subsequent years up to April, 2021.
The additional tax company car drivers will have to pay as a result of delaying the removal of the 3% differential is not unsubstantial.
Comparing costs on the Fleet News car tax calculator, the driver of a Ford Mondeo will pay an additional £150 per year in BIK tax and the driver of a Vauxhall Astra just over £100. In terms of the employer, that would equate to an increase of £106 in NIC on the Mondeo and an extra £79 for the Astra.
Nick Hardy, Ogilvie Fleet sales and marketing director, said: “It’s a kneejerk reaction to what some manufacturers have done in the market place.
“The Government should have had a clear view on diesel vehicles before making the decision to remove the surcharge. Customers have chosen vehicles based on the removal of that surcharge and now there’s nothing they can do about it.”
Both Leaseplan and Ogilvie have said they have had to increase their communications with fleet managers to help them make sure drivers are aware ahead of April, and had to change their systems overnight, when the change was announced, to make sure fleets were not looking at leasing quotations with the incorrect BIK figures.
Walters said that while problems like this will always create difficult conversations with customers, it is fleet managers who are bearing the brunt of happy or confused drivers about why they will have to continue paying a 3% surcharge.
Paul Tate, commodity manager at engineering and technology company Siemens, said: “We’re trying to be as transparent with drivers as possible.
“We always inform employees of the full life tax implications for the vehicle they are choosing.
“Unfortunately, it has meant in some cases drivers knew they were stretching themselves on the BIK payments in year one as they knew they would get a 3% relief over the remainder of their contract.”
Siemens is however seeing a shift away from diesel, with petrol plug-in models like the Mitsubishi Outlander, BMW 3-series and Mercedes-Benz C-Class proving popular.
Of the 408 vehicles currently on order at Siemens, 62 are petrol plug-in hybrids, or 15% of the order mix.
Tate said: “There has without doubt been a spike in orders for petrol electric models since news of the 3% surcharge broke, it’s had an impact on the choice list.”
Siemens has been communicating with drivers through email campaigns since the Autumn Statement and will continue to do so in the run up to next month.
Tate said that for some, the 3% surcharge will be quite a lot to take for some drivers and it is working on a case by case basis, with some even terminating orders.
However, early cancellations are not common place, according to Leaseplan and Ogilvie.
As Hardy explains, companies will not want to get out of leasing contracts early as the termination charge will outweigh the extra paid due to the 3% surcharge.
“For those that made their vehicle choice before the policy change we had to call them up with the bad news,” he said. “Normally, in that situation you want to call a client with the bad news and then a potential solution, but with this, what can we do?”
One company car driver, who asked not to be named, said he made his vehicle choice prior to chancellor changing his mind to benefit from the removal of the 3% surcharge.
He said: “I took my latest company car last year specifically, because it would attract a reduced tax level in future years.
“I ordered a Golf GTD but was also considering a petrol Audi A3 Sportback. I researched the tax bandings and calculated lease/tax costs over the three years of the contract.
“It now appears that the 1.4 litre TFSI petrol Audi would have been cheaper even allowing for optional extras to align the specs.”
Walters believes the Government didn’t fully understand the impact the change in policy would have on drivers. He said: “The Government probably thought six months was enough notice to be prepared.
“Normally you’d see some grandfathering when legislation changes happen like this, so any vehicles ordered under the assumption the 3% surcharge would be removed would be honoured at that policy, but I think the Government saw it as the current system just continuing, rather than changing anything. That doesn’t change the fact people had already made decisions on their vehicles based on that policy happening.”
The fleet industry is now waiting on the Government's Budget on March 16, to set out its stall for company car tax beyond 2021.
Walters said: “Will something new be introduced in the Budget for company car tax? We’ve had the same system since 2002 and while drivers would like to see something different, they have to ask themselves the question, would they like to see a new tax regime if it meant they had to pay more?
“Whatever happens, company car tax isn’t going anywhere; it’s worth too much to the Government’s coffers.”
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Freelance writer for Fleet News, Tom Seymour has been a specialist B2B journalist covering the automotive sector for over 14 years. He started his freelance career in 2015 and currently writes for a variety of automotive, business and technology publications.
Petrol Paul - 03/03/2016 11:38
I'd concur. The government needs to be very careful that drivers don't opt out of company cars by pushing company car tax too far. Its not just BIK tax they stand to lose by drviers opting out - the implications are much more far reaching. Cash takers are much more likely to buy second hand cars. Thats not good for the governmment, the economy, road safety or the environment. New Cars generate VAT revenue for the Government New Cars support our economy with thousands of manufacturing jobs - Nissan, Vauxhall, Toyota, Honda, Mini JLR are manufactured here in the UK. New cars drive down average C02 of the 'UK Fleet' and become ever safer.