15 February 2017 | Chris Chandler
With the exception certain low emission vehicles, tax and national insurance advantages will be removed for salary sacrifice vehicles delivered after April 2017. What does this mean for FMs in charge of a fleet of vehicles? Chris Chandler of Lex Autolease explains
The UK fleet market has seen a sharp rise in the uptake of green technology over the past 18 months. Figures from the Society of Motor Manufacturers & Traders show growth is running at 25 per cent year-on-year, encouraged in part by government tax incentives, the rising number of vehicle models available and continuing improvements to driving range.
The desire for environmental sustainability has also played a key role, particularly in the facilities management sector. The latest Sustainability in Facilities Management report shows the appetite for environmentally sensitive policies has grown significantly in the past five years.
Adopting plug-in hybrid, pure electric cars and electric LCVs (light commercial vehicles) has been a key strategy senior management teams have deployed across FM to grapple with the challenge. These ultra-low emission vehicles (ULEVs) still form only a small proportion of business fleets, however, recent changes to salary sacrifice schemes and company vehicle tax bandings in the Autumn Statement should see this proportion increase markedly post-2020.
Forthcoming tax changes
Regulatory changes announced in November have implications for FM companies running salary sacrifice or cash-for-car schemes. With the exception of ULEVs with CO2 emissions of 75g/km or less, the tax and national insurance advantages attached to these employee benefit programmes will be removed for all vehicles delivered after 6 April this year.
Running a fleet with a high proportion of traditionally fuelled LCVs and cars will undoubtedly become more expensive for firms across the sector, but tax on ULEVs is also increasing in the short term. For example, a plug-in hybrid with CO2 emissions of 0-50 g/km is currently taxed at 7 per cent for the 2016/17 tax year, rising to 13 per cent in 2018/19. But the lowest emitting ULEVs will be subject to new lower tax bands from April 2020 based on 'charging range' criteria.
The changes will see 15 new bands, including 11 for ULEVs and zero-emission vehicles, depending on what range a car can travel in electric mode on a single charge. The same plug-in hybrid with a range of over 130 miles in zero-emission mode will be taxed at just 2 per cent.
It's clear there is a stronger tax incentive for FM businesses to invest in ULEVs, but this is further complemented by both the government and manufacturers addressing some of the biggest obstacles to adoption. Together with broadening the range of vehicles available and bringing down costs, the new £80 million pledge for developing charging infrastructure is expected to translate into more charging points on the roadside in urban residential areas, and rapid chargers at service and petrol stations. And the new 100 per cent capital allowance benefit could provide firms with a tax advantage for installing their own charging points.
Boosting ULEV adoption
If you run a salary sacrifice car or traditional company vehicle programme, the changes signal a long-term commitment to green technology and the government's desire to see businesses boost the proportion of ULEVs in their fleets.
Pure electric LCVs are best suited to lower mileage and urban or local driving; plug-in hybrids are useful for occasional longer distances, and must be regularly charged to ensure the environmental and cost benefits are realised.
So while the chance to make fast savings will be tempting, businesses must invest in the fuel technology that best suits the company and employees over the longer term.
More information
HMRC report: Personal Tax: changes to bands for ultra-low emission vehicles in company car tax
Chris Chandler is principal consultant at ?Lex Autolease