From next April, a raft of new rules are due to come into force regarding company cars, which will trigger different rates for new vehicles. Trying to unravel the facts for this column has shown me how complicated the structure will be.
Out go mileage bands, which used to cut in at 2,500 and 18,000 miles, together with discounts for older cars. In comes a percentage tax based on vehicle emissions. This will escalate each year for the first three years if the initial emission level exceeds 145 grams per kilometre. And you've guessed it – there are virtually no models available on the market today with an emission level as low as this.
Separate bandings exist for diesel cars and those using multiple forms of fuel. Diesel is generally far better than petrol on emissions but a flat 3% surcharge has been added to address the issue of particulate and sulphur emissions where it is worse than petrol. This surcharge will reduce once emissions comply with new European regulations. (Hardly any vehicles currently comply.)
The good news is that the bog standard rep mobile – such as a petrol Mondeo, travelling more than 18,000 miles a year and driven by a rep on the basic tax rate – will pay only an additional £130 a year in tax. As stealth taxes go, drivers get off lightly. The peace of mind and convenience of a company car will far outweigh the risks and hassle of private car ownership.
Life gets more complicated for a 40% taxpayer driving, for instance, a petrol BMW 530 – the tax will more than double to nearly £5,000 a year. This may be a small price to pay for the status such a machine conveys. But if the price is too high, a compromise might be to change from petrol to diesel. The combined savings of lower emission charges and fuel costs amount to more than to £900 a year, assuming you're driving at least 12,000 miles a year.
I've driven diesel cars since I was 18 years old. Being mean, I was always attracted to the huge fuel savings. Little did I know that I was also saving the world by emitting less pollutants. I'm now rewarded by the government by having to pay £10 a year less than a petrol equivalent for my road fund licence.
Performance of diesel engines now almost matches petrol-driven cars. Their resale value tends to be higher, offsetting the slightly higher initial price. And don't forget that often they occupy a lower insurance category, which can be useful, particularly on bigger cars.
Car choice is emotive, but the important point is to be aware of these changes and ensure that any purchase decisions made now are properly thought through in the light of the new regime. A perk car given to an important member of staff as an incentive could be resented in 18 months' time if the staff member has not fully understood the tax consequences of the vehicle they are choosing today.
Many drivers may wish to abandon the company car but, if they are high mileage drivers, they should consider the risks on depreciation. The running cost charges allowable under the new system are lower, which will mean that base salaries will need to rise to compensate.
For the insurer, these changes bring new issues. Commercial fleets are a key target market and the fleet profile is undoubtedly going to change with an increase in eco- and tax-friendly cars. The size of commercial fleets will potentially decrease as company car drivers become tax-sensitive and opt for privately owned vehicles and insurance policies. I wonder how many in the industry, and the drivers themselves, are fully aware of the implications looming – I anticipate that decision makers will suddenly jump into action once the true effects of these changes sting the wallet over the next couple of years.
I hope that there is not a hidden agenda to attack the company car. From an environmental point of view, companies will almost always buy new vehicles that pollute less. From a health and safety point of view, they tend to be better maintained and are generally safer as well.
A useful reference site on the CO2 emissions of most models are held at the Vehicle Certification Agency website – vca.gov.uk.
I would certainly not argue with the thrust of the changes. It would, however, have been helpful if the government had used a few people from the real world to implement the changes in a slightly more digestible way.