Tax pitfalls can cost fleets dear

David Rawlings finds that six of one is not always half a dozen
of the other when looking at lease rentals
 
 
 

Does a £500 rental cost the same as a £500 rental? Despite this
being an apparently obvious question the answer is – no. Many
companies currently place far too much emphasis on the rental (or
upfront) cost of a car. More sophisticated companies believe they
are looking at the whole-life cost of a car but, if they don’t
include the tax, it is not the whole-life cost.

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 Consider the employer’s national insurance contributions
(NIC). To date companies have generally paid little attention to
the CO2 emissions of cars because they view this as a driver and
not a corporate matter. But a company’s NIC bill is 12.8 per cent
of the employee’s benefit-in-kind charge, which is based on the CO2
emissions of the car. Finance directors who fail to take NIC into
account when compiling car choice lists can end up with
unexpectedly large NIC bills, despite believing that employees of a
similar grade were choosing a similar value of vehicle.

 For example, one employee chooses a £25,000 (list price)
diesel saloon with CO2 emissions of 155g/km while a colleague
chooses a petrol 4×4 with the same list price but emissions of
220g/km. The NIC bill for the company will be £672 for the saloon
and £992 for the 4×4 – a difference of £320. Across a fleet of
vehicles the costs of ignoring this is likely to be huge.

 Additionally, even though two cars have the same rental cost,
it is unlikely that they have the same retail price when new. Since
the expensive car leasing disallowance is based on this, the tax
relief on the rentals could be very different.

 Going forward, the whole-life cost of a car will be
significantly influenced by its CO2 emissions as the corporation
tax relief moves to a CO2 emission basis. We expect that 165g/km
will become a key benchmark. The manufacturers are likely to
respond to this if they find that high emission vehicles become
difficult to sell into this market. Also anomalies will arise as,
for example, a 170g/km car may become unattractive as a company car
if it has a similar upfront cost as a 165g/km car but with a
downside tax burden.

 The upshot is that companies will need to seriously consider
what type of cars they allow employees to drive as the increased
cost of higher emission cars hits home. Without exception smart
companies must start to bring tax into the calculations of the
whole life cost of cars on their fleets.

The author is automotive consultant at Deloitte &
Touche