Since the government introduced a revision to the Benefit in Kind company car tax legislation on 6th April, all new cars ordered – and crucially all existing car contract amendments, including re-allocation of vehicles and changes to some contractual terms – will be subject to the new rules.
Company car Benefit in Kind tax, or company car tax, was originally designed to reflect and charge an employee for private use of a company car whilst encouraging drivers to choose environmentally friendly cars by aligning the tax to CO2 emissions.
Despite this historic green agenda, which has led to an abundance of lower emission vehicles in the company car marketplace, the new rules actually end up actively discouraging their use if the employee has an option to take a cash alternative.
Whilst Ultra-Low Emission Vehicles (ULEV’s) are exempt from this legislation they represent just a small fraction of the UK car market (only 1.3% of all new car registrations in the year ending March 2017 were ULEV).
From conversations with clients, one of the areas where the impact is being felt most is with the reallocation of cars from one employee to another. Since the new rules apply not only to new contracts and vehicles, but also to any car contractual change, re-allocating an existing company car to a new driver now carries with it added complication – and potential cost.
An existing employee, or a new hire takes on a reallocated car from another employee. If the value of the car is lower than the cash equivalent, he/she will have to be taxed on the higher amount, rather than the actual value of the vehicle. And that’s not an attractive proposition for an executive with multiple offers in hand. Responsible employers will want to minimise the financial impact on their employees. And HR will want to ensure they are not at a disadvantage when negotiating with new hires. Both of these stances will potentially cost you – the employer – more money.
The trick is forward planning and preparation. With HMRC unforthcoming with much in the way of information about what the future will look like, it’s left to Fleet Operations and HR to pick their way through it all.
It’s another illustration of how a lack of forward planning and unawareness of market and legislative changes can impact negatively on finances. When year-end P11D’s are reported, you don’t want to be hit with an unexpected bill so it’s time to be proactive, and talk to the experts.
This complicated landscape just got more difficult to navigate; organisations will need to review their policy on car versus cash alternatives and how they may need amending now and in the future. Our fleet cost management experts are ideally placed to help organisations manage this latest legislative curveball – and the rest of your fleet operation.
For more information, please contact us.
Article by: Sean Bingham