Government’s road tax plans set to cost car hire firms millions

The car rental industry could be hit with a tax rise of more than £30 million if the Government goes ahead with its plans to change the Vehicle Excise Duty regime next year.

In the 2015 Summer Budget, the previous Chancellor of the Exchequer, George Osborne, announced that a new taxation system will be introduced for cars registered after April 1, 2017. The first year tax for new cars will still be linked to CO2 emissions, but in subsequent years the tax will be calculated according to the vehicle’s list price.

Rental companies have said that if they were to operate similar fleets from April 2017, these changes would see them hit with a tax rise of £31.4m.

In order to mitigate against this tax rise, car rental firms have said they will operate their fleets for longer. Data supplied to the BVRLA by rental companies suggests this will result in over 29,000 fewer new car registrations by car rental firms next year.

Ahead of today’s autumn statement, BVRLA chief executive Gerry Keaney has urged new Chancellor Philip Hammond to defer or phase in the implementation of the first year VED rates.

He said, “Rental companies account for a substantial proportion of new car purchases in the UK, and if these reforms go through, the Government will seriously damage its green agenda and its air quality goals.

“Many of these cars are ultra-low emission vehicles, and by introducing these VED reforms, the government will be adversely hampering its overall goal to drive the take-up of clean vehicles and improve road safety.”

The BVRLA believes that the VED changes will result in rental companies choosing to keep their existing fleet longer. By doing this – instead of purchasing new cars – even fewer modern, clean, safe vehicles will be purchased and put onto the UK’s roads. Furthermore, it will reduce the supply of these nearly-new vehicles into the second-hand marketplace, preventing more motorists from accessing affordable low-emission cars.

The proposals will also prevent the industry from claiming £1.67m every year in legitimate refunds. Car rental companies operate the newest fleet on UK roads, and the average rental car is just eight months old.

However, from April 2017, rental companies will no longer be able to reclaim the full first year rate of tax on any vehicle they dispose of which emits more than 110 g/km CO2.

Keaney said: “We are calling for these complex refund rules to be removed so that anybody selling their car is fairly entitled to claim back the full amount of unused tax owed to them.”