The need for company car tax clarity

 Published 5th August 2022
Company Fleet  General Guides 

Industry representatives are calling for clearer guidance from the UK Government over company car benefit in kind tax rates.

Benefit in kind (BIK) rates are known up until the end of financial year 2024/25, but a combination of factors mean that not having rates available past that point is putting the company car market in a tricky situation.

The overarching issue is a lack of supply of new vehicles. This has come about because of Covid-related issues, a shortage of crucial semi-conductors, Brexit transition, and more recently part supply issues as a result of the conflict in Ukraine, mean customers placing orders for new cars may not receive them for another year or more.

With cars in a cycle that could easily be four years, this puts business drivers in a car into the 2027/28 tax year, yet the visibility on BIK rates are only known until 2024/25.

Concerns are that HMRC will put BIK rates up dramatically in the next set of financial years' figures, placing drivers into a position where they could be stung financially even if they are trying to do the “right” thing and lease an electric car.

The sector with the greatest potential to be hit hardest is the electric car market. Currently, BIK rates are guaranteed to be at just 2% until FY 2024/25. But if these start climbing significantly in subsequent years, it would put them in an unfair position.

As such, industry bodies such as the Association of Fleet Professionals (AFP) and the British Vehicle Rental & Leasing Association (BVRLA) are campaigning to get HMRC to publish BIK rates beyond 24/25.

They argue that this would not only clarify the position for drivers and fleet operators, but it would also provide drivers with confidence when choosing their vehicle.

“The strides we have made as an industry to phase out petrol and diesel cars before 2030 are clear, nearly 60% of electric vehicles on UK roads are company registered. Order banks are currently healthy, with 80% of salary sacrifice orders being for battery electric vehicles as their low tax rates appeal to drivers.

“The uncertainty caused by the lack of foresight beyond 2024/25, or by seeing a sudden jump in rates, will cause the growth of EVs to stall. This needs to be addressed by the Chancellor in the budget this autumn.”

Garry Keaney, BVRLA Chief Executive

With electric car sales driven significantly by the fleet market, the AFP is calling for HMRC to keep raising taxation at a gradual rate. It argues that a gradual rise will help continue the rapid growth the EV market has been seeing over the past few years.

“We remain in a situation – which we have been highlighting for some time now – where BIK tables have only been published up until 2024-25, leaving businesses and employees with no indication of what the rate will be for 2025-26 and beyond.

“Our fear is that if the government believes that the electric car market is now capable of standing with little support, we will see a sudden jump in BIK taxation over a short period of time. The temptation to do this might be strong, especially at a point in time when the public finances are not in the best shape. It's potentially worrying.”

Paul Hollick, AFP Chair

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