BEFORE small business owners start celebrating the 2% cut in corporation tax in the Summer Budget, they’ll be getting clobbered for their company cars with changes in the vehicle excise duty (VED) regime.

According to Gary Killeen, fleet services commercial leader for GE Capital UK, the new VED system will see a considerable increase in the duty paid for most fleet cars registered from 1st April 2017.

He said: “If you look at the impact on a 110g/km vehicle, we calculate that fleets will pay an additional £500 above the current system over a four year life cycle.

“Under the current system, a 110g/km car is taxed at zero in the first year and £20 per year thereafter, equalling £60 over four years. Under the new system, it would attract a VED of £140 in the first year, followed by £140 in each successive year – a total of £560 over the same four year period.”
He also pointed out that, if the vehicle has a list price of £40,000 or more, then there is a further £310 to pay every year in years two to six, which will add an additional £930 over the four year cycle.

Overall, total increases ranging from £250 to £1,470 will be seen over four years for cars in the typical fleet CO2 range of 91g/km to 130g/km.

Killeen added: “One further observation worth making about the new VED regime is that only in the first year of the vehicle’s life is there any direct financial incentive for buying a low carbon model, with a first year stepped scale ranging from nothing for a zero emissions vehicle through to £2,000 for one over 255g/km. Following that, there is a flat rate of £140 for each successive year.  It remains to be seen if this approach has an impact on the appeal of low emission cars in the used car market.”

However, the green business car manager will benefit from the VED changes according to Richard Schooling, CEO, Alphabet.

He said: “We’re pleased to see that the Chancellor is supporting initiatives that encourage the uptake of greener business vehicles. The introduction of first year rates based on CO2 emissions for Vehicle Excise Duty only strengthens the incentive to choose the cleanest and most sustainable vehicles, which is key in shaping the future of business mobility.

“It’s also good to see the Government documenting the requirements for employers’ pay-rolling cars as of 2017, to hopefully simplify the reporting of tax and benefits for millions of employees and employers.”