Treasury U-turns add further challenges for company car fleets
The number of company car drivers has fallen over the past decade amid uncertainty over how much tax they will pay
Renewed calls for clarity as 'emergency budget' shelves tax cuts for drivers
Fleet stakeholders are demanding urgent policy clarity from the government, claiming the policy U-turns of new chancellor Jeremy Hunt are fuelling uncertainty for company car drivers and fleet managers.
Monday’s announcement reversed most of the tax changes set out in the 'growth plan' of former chancellor Kwasi Kwarteng less than a month ago, hoping to stabilise markets ahead of the ‘medium-term fiscal plan’ on 31 October.
This includes “indefinitely” shelving plans to reduce the basic rate of income tax from 20% to 19%, originally announced in March 2022. Scheduled for April 2024 and brought forward a year, this had promised a 5% reduction in company car tax for around 300,000 drivers.
Company car benefit in kind is based on the vehicle’s ‘taxable value’ – a CO2-weighted percentage of its list price – and the driver’s income tax band. Basic-rate taxpayers (earning between £12,571 and £50,270) pay 20% of the taxable value per year.
Reforms would have amounted to a savings of £54 for a petrol Vauxhall Corsa or £95 for a diesel Skoda Superb during a period of rising household bills and unclear future tax policy. HM Treasury has only confirmed tax bands until April 2025, so drivers taking delivery of a new car today have no idea what they will pay after that date.
There are concerns that this could increase the decline in company car uptake in the UK. The latest HMRC data shows 720,000 people paid tax for a company car (including salary sacrifice schemes) in 2020/21, compared with 950,000 in 2011/12.
FleetCheck managing director Peter Golding warned that this trend poses administrative challenges for fleet managers: “A relatively large number of people have moved out of fleet schemes and are using their own vehicle for work purposes. This means a substantial growth in grey fleets and potentially also an increase in the proportion of drivers using their own cars intensively for business, rather than on a more occasional basis.”
Electric and plug-in hybrid car drivers, who make up 17% of company car benefit recipients, could also face uncertainty. The Energy Price Guarantee will end next April, 18 months early, removing the 34p per kWh cap on home electricity prices, which also stabilised charging costs. The Treasury will lead a review of alternative support for households and businesses, which includes charge point operators, in the meantime but there are no details yet.
Matthew Walters, head of consultancy services and customer value at LeasePlan UK, said overdue policy decisions, including new mileage rates for EV reimbursement, are becoming increasingly problematic.
“The fleet sector relies on long-term certainty and the ability to make procurement decisions with confidence, and they can wait no longer,” he said. “The new chancellor has his work cut out clearing a backlog of vitally important fiscal decisions and this process must begin at the next proper budget."