According to the latest figures by HMRC, the tax on company cars has increased by more than 24% year-on-year, equating to around £360 million over the last financial period. Astonishingly, the number of employees who received the company car benefit fell by 20,000 over the same time, which is a 2% drop from the recorded 960,000 employees who paid benefit-in-kind (BIK) tax in the 2015/16 financial year to 940,000 employees logged for 2016/17.

National Insurance Contributions (NICs) on company cars are showing an increasing pattern too, with a 5% rise from 2015/16 to 2016/17 to a figure of £630m.

These provisional figures show that HMRC is increasing its revenue from the company car market through high taxes put on the drivers, with BIK taxes and NICs collecting a record-breaking £2.48 billion for the Treasury in 2016/17, a total increase of 19% from the financial year before. This puts the average annual tax yield on a company car at £2,638 for 2016/17, which was a 22% year-on-year increase from 2015/16’s figure of £2,166 and a significant increase from the data recorded at the start of the decade, where a company car was £1,680 in BIK and NICs on average.

Let’s put this into perspective – in the financial year 2012/13, the number of employees with a company car was recorded at 940,000, mirroring the stats of 2016/17. Yet, in 2012/13, the Treasury collected £1.75bn in BIK taxes and NICs – £730m less than the figure recorded for 2016/17. So, why the increase?

Predominantly, the reason for the price growth is the annual two percentage point increase in BIK rates that were implemented in 2015/16, with previous financial years only seeing a one percentage point rise typically. This is alongside the increase in taxable value of the total UK fleet of 940,000 vehicles over the same periods, as recorded by HMRC, which was documented to be worth £4.57bn, up from £4.32bn in the previous period.

The higher BIK rates were decided in line with the anticipated removal of the three percentage point diesel supplement – announced in the 2012 Budget and was expected for an April 2016 start date. Despite this declaration, the supplement was delayed until 2021 by former chancellor George Osborne because of the introduction of thorough EU emission testing, and two years later, Chancellor Hammond announced the plans to raise it to 4% from April 2018.

In light of the non-removal of the diesel supplement, the data from HRMC indicates that the average annual company car tax paid by drivers in 2016/17 was £1,968 (around £164 per month), which is a 27% increase from the previous tax year.

Despite company car drivers selecting cars with lower CO2 values, with a pattern of a reducing trend in high-emission vehicles, drivers are still being hit with increasing tax bills. In fact, company cars have dramatically reduced the level of emissions – from 58% of vehicles with emission values in excess of 165g/km recorded in 2002/03 to just 3% in 2015/16. This is a trend that is expected to continue with the new WLTP tests coming into the equation.

With the government yet to announce what the BIK rates will be after April 2021, it leaves those on a four year replacement cycle unsure of what this will do to their costs.

For businesses, the challenge lies in how to streamline the costs of company cars to tackle increasing tax bills and uncertainty around cost-effective vehicle procurement methods. Our reviews of policies and procedures help you gain a thorough understanding of the process, helping to keep your employees cost neutral. Get in touch with the Fleet Cost Management team today.

Article by: Sean Bingham