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Tax-driven drift away from company car might benefit car dealers

Franchised dealers might see an uplift in new car demand in the future as the number of company car drivers is predicted to drop.

Lex Autolease, the UK’s biggest leasing company, believes the number of company car taxpayers could drop from 940,000 to 832,000 by April 2020 as a result of optional remuneration arrangement (OpRA) tax changes and WLTP.

It suggests more business drivers might choose to privately purchase a vehicle to avoid increasingly punitive taxation charges.

The number of employees paying benefit-in-kind (BIK) tax on a company car fell by 2% from 960,000 in the financial year 2015/16 to 940,000 in 2016/17, according to the latest figures from HMRC, and Lex Autolease believes there will be a similar drop when the figures are published for 2017/2018 (to 921,000 company car taxpayers).

It predicts that this number will then fall by 5% in the 2018/19 financial year (to 875,000) and a further 5% in 2019/2020 (to 832,000) as the impact of OpRA and WLTP testing are felt.

Commenting on OpRA, Ashley Barnett, head of consultancy at Lex Autolease, said: “The changes to company car taxation under OpRA have led to additional complexities and costs for customers and drivers. 

“The update in the recent finance bill where the ‘fair and reasonable’ adjustment was excluded will also make company cars less favourable, as the driver tax increases to reflect the cash sacrificed.”

The introduction of WLTP testing this year, meanwhile, has led to a number of issues for fleet operators, reports Fleet Leasing.

Although the figures produced under the test are not being applied to company car tax yet (instead NEDC-correlated figures are being used until April 2020) there have been increases in CO2 values, leading to fleet operators and company car drivers paying more tax.

This is unlikely to be adjusted by the Government, although it has launched a consultation to determine whether vehicle tax changes are required once WLTP is adopted for tax purposes from April 2020.

Lex Autolease’s projections were made prior to the consultation’s launch.

As a result of WLTP, it has seen an average tax band increase of three percentage points (for example, if a driver's BIK was 20% it is now 23%) and Lex Autolease has factored this into its calculation. Its calculation is also based on people opting for a similar car i.e. not proactively choosing a model with lower emissions.

Commenting on the impact of WLTP on the projected fall in company car taxpayers, Barnett said: “New emissions values under WLTP mean that more cars are now in the greater than 110g/km bracket. 

“For drivers looking to renew with a similar vehicle – assuming it’s still on the choice list – the associated tax costs will increase, which may lead them to reconsider the cost of funding a company car and look at personally-funded vehicles instead.”

Despite expecting a significant drop in the number of company car taxpayers, Lex Autolease believes there will be a rise in the tax take to £2 billion in 2020.

“If you're in any other industry and you see footfall declining but profits going up you just keep going,” Barnett told delegates at a recent BVRLA industry outlook conference.

“But, ironically, one of the things we're trying to suggest is we need the Government to change direction, which is absolutely the right thing to do.”

He highlighted the important role the company car market can play in helping the Government realise its Road to Zero strategy – not by “swapping full customer fleets to electric vehicles tomorrow,” but by swapping “one or two vehicles at a time”, which collectively, as an industry, would make a difference.

“That, for me, is a key message we should be playing to Government,” he said.

 



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