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Will the 3% diesel supplement force company car drivers to migrate to opt-out?

Opinion
4 min read
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Paul Parkinson hs
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Paul Parkinson

  • Paul Parkinson, managing director of Synergy Automotive, was part of the BVRLA delegation that met HMRC at KPMG’s London headquarters to discuss the future of company car tax

I’M a committee member of the British Vehicle Rental and Licensing Association (BVRLA) – the voice of the vehicle leasing and rental industry which effectively lobbies government on UK fleet issues.  

Towards the end of 2015, I was part of the BVRLA delegation that met HMRC at KPMG’s London headquarters to discuss the future of company car tax. Naturally, there was a full agenda and a lively, constructive debate with treasury officials – and subsequently the association published a series of policy recommendations on tax issues.

A follow-up meeting will be held later this year, where these will be discussed in further detail.

However, I think there is a potential concern that we will be overtaken by events in the meantime, as a trend has been further accelerated by two major issues.

The Chancellor undoubtedly needs his revenue from company car drivers. However, my team and I speak to dozens of business drivers every day and are picking up some dissatisfaction with BIK tax levels – and uncertainty surrounding where they go next.    

They are understandably not overjoyed with the recent reversal of the decision to scrap the 3% diesel supplement from this April, together with increases at the lower end of the emissions table. These issues are, I believe, the ones that could drive more company car users away and into their own vehicles.

If just 5% of the 940,000 company car drivers (2013/2014 HMRC benefit-in-kind tax payers) opt out over the next five years, the anticipated additional £1.36 billion raised by keeping the 3% supplement could be reduced by more than 40% – the equivalent of over £560 million, shrinking net tax gain to just over £700 million.

The announcement that the supplement would end this year was made in 2012. This meant that many drivers committing to diesel vehicles since then (whether leased or purchased), thought that they had certainty on the issue.

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When you also consider that benefit-in-kind (BIK) is rising year-on-year and we have no idea where it will go in the future it’s clear to see why there is concern.

If just 5% of the 940,000 company car drivers (2013/2014 HMRC benefit-in-kind tax payers) opt out over the next five years, the anticipated additional £1.36 billion raised by keeping the 3% supplement could be reduced by more than 40% – the equivalent of over £560 million, shrinking net tax gain to just over £700 million.

This scenario could lead to further benefit-in-kind rises, which would prompt yet more drivers to opt out – leaving a significant hole in treasury incomes, with the remaining essential user drivers picking up the tab.

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In my opinion, linking the U-turn in company car tax to the recent sensitivities over emissions testing is a convenient story. Of course, the recent emissions scandal has raised awareness of the higher levels of pollution being emitted than previously thought and there may well be further revelations to come.

However, discrepancies are not the fault of drivers of company vehicles; they did not provide the CO² data, yet they are the ones who are footing the bill for the problem.

Given that we were told that the supplement would end almost four years ago, nearly everyone taking a vehicle since will have to pay more with the turnaround – and those who have had theirs less than a year could be stuck with years of increased cost, depending on their agreement.

It would seem fair to me to make some allowance or adjustment for these users that would go a long way to restoring trust and confidence. This could easily be achieved by some sort of grandfathering arrangement, which exempts those drivers from the effects of the reversal – or compensation could be applied into BIK taxation.

Company car drivers might then feel reassured that they are not easy target.

 

  • Synergy Automotive is a contract hire and leasing broker intermediary, working with SME clients with fleets from one to 250 vehicles.

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