Company cars are in their dying days
The company car is being taxed out of existence, whether you’re going for a low emissions or high emissions vehicle, and it’s just not worth it anymore, says Rebecca Benneyworth.
AccountingWEB caught up with Benneyworth to discuss how she had come to this conclusion following the last Budget announcements.
She said it wasn't a marked change on one day, but we’ve now got figures through to 2018/19 as the government announce them early and then legislate the following year.
“Basically it’s the direction of travel, forgive the pun,” she said. “What’s going to happen is that tax on company cars is set to rise really quite markedly over the next few years. Oddly, it’s perverse, but almost the worst to lose out from it are people who have gone for a low emissions car.”
Benneyworth first gave an example of her convertible Smart car, which has a conventional engine with quite low emissions, to explain her point. It emits 82 grams CO2 per kilometre and is currently taxed at 11.5% of list price.
“It’s a moderately cheap car to buy brand new, and I actually bought it because it’s very low emissions - that was why I wanted it. But by the end of the period we’ve got figures for - that will be taxed at 19% of list. So my benefit in kind is almost going to double,” she explained.
To illustrate the point further, Benneyworth turned her attention to the Nissan Leaf, which is a fully electric car.
She explained that as a company car and if you’re doing a lot of miles, then it’s got some major limitations because the range on it is not that brilliant. But despite a £5,000 government grant towards buying one, the other downside is electric cars are so much more expensive and you are taxed on the full list price.
However, she said that at the moment you would be paying zero benefit in kind, and by that same date, it will shoot up to 11%.
Another example is the Vauxhall Ampera, a popular fleet car, which is a very efficient hybrid that only emits about 30 grams CO2 per kilometre. Again it has a high list price, but the benefit in kind is basically shooting up in the coming years.
Benneyworth said perversely the only people who are not seeing huge rises in their tax bills having a company car are those people who have got a big car, such as a Range Rover.
“Alright they are paying a lot of tax, but theirs isn’t going up, because they’re off the top of the scale already,” she said.
In terms of the amount of money all is going to cost, Benneyworth said one of the Budget tables showed an extra £250m a year in car tax as a result of the rises.
Benneyworth said the solution to this issue, and particularly if you’re an occasional business driver, it really is give up your company car and charge 45p a mile for your personal car. “That really is the only sensible solution,” she said.
It’s an even tougher decision for someone who does a lot of miles.
“For someone like me who does a huge number of business miles, the 45p a mile plus 25p after 10,000 isn’t really going to cover the business motoring costs because of the depreciation on the car.
“If they buy their own car to do that in, they’re going to lose money hand over fist. But to have a company car they will pay so much tax that you sort of wonder what’s the home for them? They’ve lost out and all they do is drive for work.”
The answer, she reluctantly said, is probably a van.
“Because the benefit in kind for that is only just over £3,000 and if they are doing silly miles, i.e. doing 50,000-60,000 miles a year, then leasing is out so you’re not left with a lot of choice. It’s those drivers that I feel extremely sorry for, because they don’t really have a natural home and probably a van is the only thing for them,” Benneyworth said.
She added that there probably wasn’t much of an actual benefit in the normal sense of the word, to somebody who’s got a company car and is doing that many miles.
“And yet they are being taxed an absolute fortune for it. The writing is on the wall really and I feel very sorry for these drivers. There is almost a policy blind spot there. In order to do business some people have to drive. What we’re going to do is tax them into a position where give up their job.”