Diesel’s reputation as a fuel for company cars has been polluted. The VW scandal has left fleet managers fuming, and the potential benefit in kind (BIK) implications could put the brakes on diesel’s future in the company car market.
For a while diesel’s future as a fuel for company cars was looking good. From April 2016, the government were set to eliminate the 3% diesel surcharge, believing that the nitrate oxide emission levels had improved and diesel was getting cleaner.
Then, the US environmental protection agency discovered VW had been using a defeat device to get around emission laws, which saw the EA 189 diesel engine pump out nitrogen oxide pollutants up to 40 times more than what the US allows. Volkswagen has since admitted that 1.2m cars sold in the UK will have had the software fitted to dupe the emission tests.
The question remains whether the government will reverse the planned 3% surcharge removal which currently makes diesel more attractive to fleet managers. Alastair Kendrick, employment tax director at MacIntyre Hudson, says, “If the manufacturers are going to come clean and we’re going to see larger C02 emissions, how significant will this be against the 3% relief that they’re going to be getting in April. I imagine, given the scale of the alleged issue at VW, the 3% is a drop in the ocean to the potential increase in BIK charge that would apply if those benefits were to go forward in new vehicles.”
This change would impact companies’ procurement policy in switching from diesel to petrol cars. Kendrick says that this would result in: “people being very nervous about going into diesel until the whole mess is sorted out”. If the BIK was to be significantly higher, companies would strike diesel vehicles off their fleet list.
However, Kendrick believes that this incident could open pandora’s box and encourage the government to go back to the drawing board and decide on a new basis for calculating the benefit. “If these C02 emissions are so haywire, as being suggested, the tax benefit on new diesels are going to be so high and people are going to say that it is out of proportion to what we’re currently paying and boycott them.
“If you look at other countries, their BIK is not calculated based on a list price in CO2; CO2 comes into to it, but they take into account the actual benefit you get from the vehicle. So if you use the car purely for business you get no benefit, but if you do private mileage in that vehicle then you’re tracking the private mileage and apportioning the cost of the vehicle.”
HMRC has assured fleets and drivers that they won’t be penalised for BIK on the offending vehicles, saying in a statement: “Company car tax is based on the CO2 emission figures for the particular type of car, shown on either the UK approval certificate or the EU approval certificate. As the car benefit charge is calculated on the basis of the figures shown on the approval certificates, the tax position for Benefit-in-Kind purposes remains unchanged.”
But HMRC are unlikely to park this issue, having only stated that the individual won’t be liable. Bill Longe, Baker Tilly’s national head of employer solutions, thinks that HMRC will be looking for some reparation from this incident. “If it is eventually proven that the VW software did lower CO2 ratings, then HMRC – and ultimately UK taxpayers - will feel quite rightfully cheated out of much-needed revenue. The situation is changing by the day, and I expect that the taxman will be watching this case develop with keen interest over the next few weeks,” he said.
Whatever happens next, there’s no denying that this is not a good time for diesel in the company car market. Volkswagen has announced that they expect to recall the affected vehicles in January, and will be fixed by the end of 2016, but questions still remain regarding the vehicle’s fuel efficiency after the alterations.
A recent Sewells research and insight survey questioning more than 460 fleet operators suggests that diesel has been contaminated in their eyes: 49% of fleet managers with VW models on their fleet say they are potentially looking to review the company’s position on their choice list.
Fleet operators have also questioned manufacturers’ scruples following the scandal with 54% saying they are less likely to trust manufacturers’ claims in the future. Kendrick advises companies to be circumspect, but urges them not to panic, to take a step back and not order any new cars just yet: “Wait and have surety that there are no other affected manufacturers. It would be silly to just cross VW off your procurement list to find others have the same problem.”