Contract Hire

Save Your Money and the Environment

The statement has often proven to be somewhat of a fallacy in practice, but The April 2010 budget suggested just that, which is good news for people considering taking advantage of contract hire deals.

The 2010 report has been the biggest shake up of automotive tax since the introduction of a CO2 based tax system in 2002, with motorists now being offered varying degrees of tax incentives for low emission vehicles and even a provocative five year tax break for Electric cars.

With many of these policies surviving the ‘Emergency Budget’ of the equally inconceivable coalition government, the impact of such measures is sure to resonate among company car drivers for years to come. However, fleet operators and drivers alike must still be questioning whether the lowest rate of Benefit-In-Kind (BIK) tax is obtainable in practice.

From the start of April, drivers emitting less than 120g/km still received the lowest band of BIK at ten percent despite the lower benchmark for the main bands of BIK tax falling to 130g/km, although cars with emissions of less than 100g/km remain free from Vehicle Excise Duty (VED) altogether. Drivers of Petrol cars with CO2 emissions in excess of 230g/km and Diesel Drivers emitting 215g/km now qualify for tax at the highest rate of 35%. Ultimately the changes to VED offer fleets and drivers with foresight, an unprecedented opportunity to reduce long-term expenditure by switching to models with lower CO2 emissions.

Alas, it would appear such foresight has not been extended to all drivers. Whilst three-quarters of contract hire company car users acknowledge the correlation between CO2 emissions and what they pay in tax, a Lex Autolease survey also revealed a disconcerting 66% felt their employee’s neglected fundamental information that would save them money when choosing a company Car. The poll showed a further 33% of drivers felt they were limited to their choice of ultra low CO2 emitting vehicles. A move that will leave many out of pocket and ‘liable for higher rates of capital allowance,’ explains John Webb, associate director of Lex’s consultancy team.

Needless to say there is little excuse on the part of employers and fleet operators. Many manufactures now produce at least one model, which falls within the sub 120g/km band. Conclusively figures published by the SMMT support the growing popularity for alternatively fuelled cars on British roads, as registration has doubled to 11,468 units and in the first half of the year and grew by 157.4% in June. It would appear that employers are taking note as the Volvo ‘DRIVe Report 2010,’ profiled 250 fleets and discovered 98% had taken up environment initiatives to lower carbon emissions despite no formal Policy. Good news for those wishing to emulate the Hollywood A-lister driving a glowing white Prius and bask in 5% BIK tax (producing a mere 89g/km of CO2) and travel at an economical 72mpg.

But what of the models emitting between 1g and 75g/km that fall within the April budget’s five-year company car tax exemption, which under chapter 7, subsection 41, promised that ‘ the percentage of list price subject to company car tax would be halved’. Where is the plug in hybrid or the electric car that will save all employees from company car tax woes? They’re not available yet and there could be a wait when they are. Toyota’s much anticipated Plug-in Prius petrol/ electric hybrid with looks set to be the earliest available sub 75g/km model and is not set to grace our isles until some time next year. Further set backs include Nissan’s fully electric and Zero carbon emissions ‘Leaf,’ which is now to be split equally with the retail market despite a spokeswoman admitting they, “could of sold all of next years allocation to fleet customers.” This could result in some fleets waiting until 2012 to fully exploit the government initiatives. BVRLA Chief Executive John Lewis surmises, “Company car drivers will struggle to find a suitable ultra low carbon car for the moment.”

“Company car drivers will struggle to find a suitable ultra low carbon car for the moment.” BVRLA Chief Executive John Lewis

Conversely, many fleets and consumers don’t even wish to contemplate electric alternatives, despite the tax exemption. Out of 80 contract hire fleets polled by ‘Fleet News,’ only five were trialling or planned to trial electric vehicles. “I’m not completely convinced yet about the practicality of electric cars, The technology has a long way to go, there are many obstacles such as range, battery ownership and life,” comments Paul Holmes, Operations Director for Derwent Management Services Ltd and avid company car user. Paul knows image is important too and to be brash electric cars don’t evoke the executive luxury in the way a Germanic diesel saloon can.

The greatest incentives implemented in the April budget are unobtainable at present and the choices of fleet available to drivers can seem limited without incurring higher rates of tax. It would be likely some are questioning the merits of a contract hire company car and consider alternatives in the form of salary sacrifices and private ownership. But this comes with its own pit falls and the mounting costs of purchasing, running, and fuelling of a privately owned car, out weigh the cost of choosing an economical company car that falls within the lower emission bands. The responsibility now falls to fleet operators, to ensure company car drivers are kept informed and encouraged to select cars that will benefit the environment and their bank balance.

The April budget forced employers and company car users to think long and hard about their choice of fleet, but the incentives created a myriad of opportunities which fell within recommendations made by the Association of Fleet Operators whom have long encouraged companies to consider low-CO2 vehicles to keep down running costs. When taking into account whole life costs, low emission cars offer cheaper motoring and cheaper contract hire deals to their drivers in terms of reduced VED tax for the company and BIK for the driver, as well as lower fuel costs. Yet with VAT set to rise again in January companies will once again review their fleet policy and look to reclaim tax wherever possible, making leasing a car all the more appealing compared to purchase. As Mark Sinclair, Director of Alphabet, emphasises: “leasing companies can recover VAT on purchase prices and pass on the benefit in the form of reduced rentals.”

“98% of fleets have taken up environment initiatives to lower carbon emissions despite no formal policy” Volvo DRIVe Report 2010