With steep increases in UK company car taxes just around the corner, there is only one question the fleet industry should ask about the government’s BIK strategy.
How did it go so disastrously wrong?
Back in 2002 when the government launched the CO2-based BIK system, it called it “a fundamental, revenue neutral, reform of the taxation of company cars, to help protect the environment.”
It was designed to offer company car drivers a predictable and progressive incentive to opt for less-polluting cars.
And so it did for a few years. But the system has been ‘amended’ in recent times. First, the three percent diesel supplement was removed. Then it was put back. From April 18, it will be four percent, unless diesels meet an as-yet unavailable emissions standard.
But the most significant changes are the two percentage point annual increase per band from 1 April this year followed by a three ppt increase in April 2019.
The combined effect of increasing the diesel surcharge and doubling the percentage point increment means that a driver of a diesel emitting 100g/km of CO2 will see their BIK bill rise by 27 per cent between 31 March 2018 and 2 April 2019. That’s an extra £600 per year for a 40 per cent taxpayer in a £25,000 car.
Zero-emission company cars drivers will face a 78 per cent hike in BIK, from nine per cent to 16 per cent, over the next two years. (While someone in a three-litre, V6, 4WD diesel will incur only an 8.8 per cent increase, albeit from a higher starting point).
In 2021 an EV driver’s BIK rate crashes back by 87 per cent to as little as two per cent, depending on their car’s range. So a 40 per cent taxpayer in a £25k car will see their annual liability go from £900 in 2017-18, to £1,300 this year, to £1,600 in 2019, before resetting to £200 in 2020.
Most concerning of all was the government’s abandonment in the last Budget of its commitment to giving fleets at least three years’ advance warning of changes to BIK rates, when it gave only five months’ notice of the new four per cent diesel surcharge.
So much for a predictable and progressive system of company car tax! The government now seems to feel it can alter rates on a whim.
There’s yet another wrinkle, which George Osborne may or may not have noticed when he agreed to double the annual increment to the BIK scale. That move brought the date when all cars above 100g/km of CO2 will attract the 37 per cent top rate of BIK forward by six years to 2026.
Doubtless the government hopes that all company car drivers will be in ULEVs of one kind or another by then – notwithstanding the as-yet unknown impacts of WLTP and Real Driving Emissions, or of yet more tinkering with the BIK system.