How company car tax uncertainty could impact the take up of sustainable fleets

Ashley Barnett, Head of Consultancy at Lex Autolease, discusses what the lack of clarity on company car tax rates beyond 2025 means for the fleet industry, and why he hopes to see it addressed by the new Chancellor in the next Budget.

What did the last Spring Statement say about company car tax rates?

The Spring Statement given earlier this year failed to bring clarity on what company car tax rates will look like beyond April 2025, leaving fleet decision makers and drivers uncertain on whether to make long term commitments on their electric journey. With a government currently in a period of flux, attention will quickly turn to the new Chancellor’s priorities come the Autumn.

The Benefit in Kind (BIK) tax rates are currently fixed at just 2% for zero emissions vehicles until April 2025. Under these rates the EV market has seen impressive growth, with more than 190,000 new electric vehicles registered last year alone in the UK, representing a commendable 12 per cent of the new vehicle market. 

It’s undeniable that this success has, in no small part, been influenced by the clarity on tax rates, which was brought in 2019 when we saw 0% BIK introduced for EVs, as well as improvements in technology, the UK’s charging infrastructure, and the variety of new EV models available. 

Since 2019, we’ve seen the commitment to EV BIK at a rate of 2% until April 2025, but no further announcements, and if we are to continue this positive trend, we need to continue and accelerate the transition over the next ten years, not risk stalling the good progress we’ve made. Fleet replacements typically operate in four-year cycles using Whole Life Costs (WLC).

What does the lack of uncertainty mean for electric vehicles?

The lack of certainty on tax rates, coupled with delays in vehicle supply, means that operators taking out a contract today will only know how much the BIK taxation element will be for the next two years – roughly 50% of the contract duration for which the BIK tax element of the WLC remains unknown. 

With the UK set to ban the sale of new petrol and diesel cars and vans in 2030, this leaves just two fleet replacement cycles before EV sales need to represent 100 per cent of new vehicles sold. 

This gives us a lot of ground to make up over the next eight years, and the uncertainty may lead fleet operators to do the opposite, choosing to delay replacement instead. This will result in an ageing UK car park where older, higher carbon-emitting cars are remaining on the road for longer, instead of being replaced by cleaner and greener models, impacting our chances of achieving Government’s emissions targets.

The impact of uncertainty surrounding BIK rates is also being compounded by the delays in lead times for new vehicles, with some stretching into 2023, as a result of the semiconductor shortage and global issues. This is in addition to rising purchase prices for vehicles, and rising fuel and electricity costs, causing motorists to reassess their options. During this period of change, more than ever, it’s important that we double down on encouraging EV uptake, by making it the clear way forward for fleet decision makers, both financially and environmentally. 

What happens next for EVs?

In this vain, it’s important that the new Chancellor focuses on enabling cost parity between EVs and ICE vehicles by continued use of the tax system, should they choose to use the Autumn Budget to make the long-awaited announcement on company car tax rates. 

Recent cuts to the Plug-in Car Grant, as well vehicle shortages driving up prices and causing manufacturers to cut discounts, means the gap has widened once more. Any move to double digit taxation rates would send the wrong message to fleets and car manufacturers alike, stalling adoption and putting the brakes on the progress that has been made.

Recent extreme weather has drawn into sharp focus the climate emergency we are currently facing and the need to cut emissions rapidly wherever possible. An announcement in the Autumn Budget would be an early decision for the Chancellor in their new role, but one that would demonstrate a clear continued commitment to driving the UK along the road to net zero ahead of COP27.

**Originally published in Business Car on 20/09/2022