Vehicle tax changes prompt replacement cycle rethink

Some fleet operators are considering new replacement cycles as a result of impending tax changes, according to Mercia Fleet Management.

New vehicle excise duty (VED) rates, which take effect in April, along with falling residual values for electric vehicles (EVs) are described as the ‘perfect storm’ for fleets.

Andrew Leech, head of Mercia Fleet Management and founder of Fleet Evolution, said: “We are in a very erratic market at the moment, with many businesses having to re-asses their fleet strategies from two viewpoints. Firstly, fleet managers are looking at the timing of the replacement of their fleets, especially those on outright purchase with a high percentage of EVs.

“We are seeing such fleets deferring their replacement cycles and staying out of the used markets in the hope that residual values on EVs will improve. As a consequence, some are turning to short term rental to plug any gaps in the fleet, which can be very expensive.”

The VED hike, announced in the Autumn Budget, applies to both pure EVs and plug-in hybrids (PHEVs).

Some operators will see their liability on widely-adopted EVs rise per vehicle from zero to £2,490 over a five-year period.

First year VED rates are being increased from zero to £10 for battery electric vehicles (BEVs) and from zero to £110 for PHEVs emitting between 1-50g/km of CO2. 

Second year rates have risen more dramatically for BEVs – from zero to £195.

Furthermore, EVs costing more than £40,000 that are registered from April, will now become liable for the expensive car allowance, also dubbed the luxury car tax. 

It will increase from £410 to £425 from April and applies annually for five years starting from the first standard VED payment that is made when the car is a year old. 

Mercia believes that one way of exerting greater control over costs could be to adopt a more flexible fleet policy, one that is not locked into a long-term leasing strategy.

“An option is to flexibly introduce EVs on subscription rather than long term leases – especially for businesses with seasonal or contractual requirements,” said Leech.