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Fleet Finance Sponsored by Auto Finance Fleet Finance News UK tax trap could cost company car drivers millions of pounds Published: 27th September 2019 Share Thousands of UK company car drivers could be caught in a tax trap that will cost them and their employers millions of pounds following the introduction of new tougher emissions standards. Tax hikes are being imposed on drivers who are using some of the cleanest cars on the road, simply because they don’t have the right paperwork. The problem, affecting the latest diesels, stems from the ongoing transition to lower-emission engines in response to tougher European emissions regulations in the wake of the Dieselgate scandal. In recognition of concerns about diesel emissions, particularly in urban areas, the UK government imposed a benefit-in-kind tax surcharge on all diesels, increasing by four percentage points the proportion of a vehicle’s value on which drivers are taxed. This surcharge is removed if vehicles meet the current highest emissions standards, referred to as RDE2. However, analysis shows that thousands of vehicles are being hit by the tax hike, even though their emissions are below the level required for RDE2, because they haven’t undergone official tests that would classify them as being compliant. RDE2-compliance isn’t currently mandatory for manufacturers, meaning there may be delays in securing a certificate of conformity under the new, tougher emissions standards. Drivers face years of unfair penalties As a result, over the course of a four-year replacement cycle, drivers and employers with compliant, but not certified, vehicles could incur thousands of pounds in tax penalties. For example, the tax rise would be 15% for an employee who pays 40% income tax, driving an affected clean diesel with a £25,000 P11D price that produces 110g/km of CO2. Over a four-year cycle, the driver would pay around £1,600 in extra tax, while the employer would incur £552 in extra Class 1A National Insurance Contributions. An assessment produced by the European Automobile Manufacturers Association in 2018 showed that most models it analysed produced emissions that were low enough to qualify as compliant, even if they weren’t officially registered as meeting RDE2 standards. According to Emissions Analytics, the global specialist in the measurement of real-world vehicle emissions, up to three-quarters of vehicles tested could be RDE2-compliant if certified. Nick Molden, the company’s founder and chief executive officer, said: “Drivers could be paying a penalty for something that they are not doing. There are vehicles that meet the emissions standard without certification.” The problem is temporary, as all new models must be compliant from January 2020 and all new cars from January 2021; manufacturers ranging from Vauxhall to Mercedes-Benz and Jaguar Land Rover have started introducing RDE-compliant models. The government introduced the surcharge in 2018, when it was labelled ‘grossly unfair’ by fleet industry body ACFO, so this leaves a two-year window when cars could be affected. Although demand for diesel has plummeted since the Dieselgate crisis, the fuel still accounts for just over 34% of fleet sales, according to year-to-date figures from the Society of Motor Manufacturers and Traders. Cars % 2019 Total BEV 0.9% DIESEL 34.2% HEV 4.3% MHEV DIESEL 0.7% MHEV PETROL 0.9% PETROL 57.4% PHEV 1.6% With the total fleet market accounting for around 1 million new car sales a year, the tax trap could affect tens of thousands of drivers while generating millions of pounds in extra revenue for the government. Claire Evans, head of fleet consultancy at Zenith, said: “Cars must have a certificate of conformity which will state whether they are RDE2 compliant or not. This is more confusing for those operating their own P11d reporting as previously all the p11d and p46(car) form details were on the V5 issued by the DVLA. “Being RDE2 compliant isn’t mandatory until 2021 and we are expecting that manufacturers will wait until model year 2020 cars are released to have them tested as part of the normal new model release rather than test out of cycle. “If companies are leasing, then their supplier will provide all the information they need and flag the RDE2 cars. Outside this it is possible that people wouldn’t know to declare it.” Growing company car tax burden The findings come amid concerns about the size of the tax burden being placed on the company car market. Total tax revenue has risen relentlessly for a decade despite a declining population of drivers; on average, company car tax is 50% higher than it was in 2009. Next year, the burden is expected to increase further for many, as vehicles currently on the road are hit by planned tax rises and newly-registered cars are assessed under a controversial new system for calculating emissions-based taxes that is expected to increase bills before they are frozen for the subsequent two years. Between the 2009-10 financial year and 2017-18, the total annual tax bill imposed on drivers rose from £1.15 billion to £1.59 billion, a rise of 38%. Employers pay Class 1A National Insurance Contributions on the taxable value of company cars and this bill rose from £480 million to £660 million over the same period. In total, the annual tax burden for operating company cars has risen £620 million in a decade, with above inflation increases imposed every year. The average total tax bill for a company car, based on the total national tax bill divided equally between drivers, has leapt 50% from £1,680 a year to £2,528. Recent government data revealed that the number of tax-paying company car drivers fell by 50,000 to 890,000 in 2017/18, according to provisional figures from HM Revenue and Customs. There is an ongoing debate about the cause of the decline, with critics saying government policy is forcing drivers to opt-out of company cars or employers to scrap car schemes altogether in favour of cash alternatives. However, HM Revenue and Customs says its latest figures do not include any estimate of the impact of voluntary payrolling, which could account for a ‘significant proportion’ of the decline in reported numbers. Voluntary payrolling was introduced in 2016 and allows employers to move away from submitting annual returns on their company car fleets through form P11D; instead they collect tax on company cars through payroll, which until recently didn’t require more detailed information about company cars; providing this data was not mandatory until 2018-19, so there is a gap in accurate information. Asset Finance Connect Asset Finance Connect brings you news and updates about UK and European auto, equipment and asset finance providers. Sign up to our newsletter Featured Stories NewsToyota cuts 2026 global EV output plans by a third NewsVan market ends summer with a return to growth NewsAugust new car market holds steady Auto Finance Fleet Finance