When it comes to fleets, the 2016 Budget is dominated by motoring taxes. There's definitely some good news for companies running car schemes in the short-term but there is still an air of uncertainty that hangs over the future of low emission vehicle taxation.
2016 Budget Fleet Highlights
- From April 2018, the capital allowance main rate threshold for cars will be reduced to 110 grams of CO2 per km and the First Year Allowance threshold will be reduced to 50 grams of CO2 per km.
- The First Year Allowance is extended until April 2021 for businesses purchasing low emission cars.
- The government will consult on reforming the lower Company Car Tax bands beyond 2020-21.
- Fuel Duty is frozen for the 6th year running.
Read on for details on each of these 2016 Budget announcements:
Capital Allowances Changes
Mimicking the 2015 changes to future BIK rates, the 2016 Budget continues to pinch tax thresholds.
2018 will see reductions in the main rate of capital allowance from 130 grams to 110 grams of CO2 per km while First Year Allowances are squeezed from 75 grams down to 50 grams of CO2 per km. (Note: First Year Allowance is only applicable for purchased vehicles, not leased.)
To maintain control of fleet finances, organisations with a company car scheme really should be tweaking their policies before Spring 2018 to reset the bar at a maximum of 110 grams of CO2 per km to ensure that they are offsetting 100% of the lease rental against their taxable profits.
From experience of living through the CO2 emission reductions from the 2012 budget (a capital allowance threshold reduction from 160 grams to 130 grams of CO2 per km), we can predict some negative driver reaction to CO2 related company car list changes.
Making engine sizes smaller is one way that manufacturers will attempt to lower CO2 emissions so we can all expect to see engine sizes continuing to reduce in future company car lists. Driver disappointment could be rife if there is no longer that 2 litre option on their list. The more you can do to manage your drivers' expectations on engine size, and the difference between engine size and torque/horsepower, the better. Our recommendation would be to communicate any engine size changes - whether expected in a list or demanded through a policy - to your company car drivers as early as possible to avoid tensions.
First Year Allowances Changes
This is great news for green fleets that are bought outright but it's important to stay vigilant when it comes to what qualifies as a "low emission" car between now and 2021.
As you've just read, in 2018 the First Year Allowance threshold will be reduced from 75 grams of CO2 per km to just 50 grams so, our advice would be to pencil in a policy reminder - and potentially a policy refresh - for then so you don't get caught out stumping up a larger tax bill than planned on newly purchased company cars that don't sit under that new 50 gram limit.
Company Car Tax Reform
Ultra-low emission vehicles, as it stands today means vehicles with less than 75 grams of CO2 per km. As the automotive market is already shifting towards lower CO2 vehicles and manufacturer technology development continues, no one will be surprised by the government's desire to "refocus" and take stock in 2021.
It's likely we'll see the government continue to tighten CO2 thresholds and possibly divide the low bands up further as ULEVs gain more market share.
In the office we have been pondering if the potential 2021 changes could also bring about separate rules for hybrids which are currently classed alongside ULEVs but can still be driven for thousands of miles each year on a non-efficient petrol engine.
All speculation of course, because the only thing we know for sure is that change is a comin' and we'll be keeping a close eye on company car benefit-in-kind taxation rates updates so we're ahead of the curve before it starts to affect our customers' drivers.
Fuel Duty Remains Frozen
Budget 2016 confirms that fuel duty will be frozen at 57.95 pence per litre in 2016-17.
There were murmurs of concern about the possibility of a fuel duty increase but they were quashed as, for the 6th year running, UK fuel duty is frozen.
Other Fleet Announcements
From 1 April 2016, Vehicle Excise Duty (VED) rates for cars and vans will increase by RPI.
Also, from 6 April 2017, Fuel Benefit Charge (FBC) and Van Benefit Charge (VBC) will both increase by RPI.
Contemplating electric cars?
If you like the idea of going green but think that range anxiety will be too much of an obstacle for your fleet drivers, just take a minute to explore the many, many benefits in our electric car blog article.