ULEVs have grown in popularity, with an estimated 9,657 registered in the UK in the last quarter alone – an increase of 49% on the same period last year.
Company cars and the fleet industry have led the way, with BVRLA statistics showing that one in four registrations of plug-in vehicles this year were private buyers. But while it’s a growing area, we must recognise that overall the numbers of electric vehicles (EVs) and plug-in hybrid EVs (PHEVs) are small compared with petrol or diesel equivalents.
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Over recent years the UK government has stated its sustainability goal that by 2050, nearly all cars and vans in the UK will be zero-emission. However, this target is set against a backdrop of declining tax and national insurance revenues for the Exchequer, despite year-on-year increases in the tax burden for company car drivers. And this year’s budget announced consultations both on salary sacrifice and options for ULEV taxation beyond 2020.
Should company car tax rules be reconsidered? In 2015, the government introduced new ULEV-specific tax bands: a band for the cleanest ULEVs with emissions between 0 and 50gCO2/km and a higher band for ULEVs with emissions between 51 and 75gCO2/km. The government committed to ULEV drivers they would pay lower company car tax than the cleanest conventionally fuelled cars until at least 2020, but they are not immune to the annual benefit-in-kind (BIK) tax rate increases for company cars.
Experts question whether these tax changes really encourage wider adoption of ULEVs, given the increasing tax demands on company car drivers up to 2020 and beyond. I believe if EVs are brought into the mainstream of company car taxation and the ‘incentive gap’ between ULEVs and internal-combustion-engine vehicles is closed or too small, there’s a huge risk that the cost of the vehicles and the new technology will not have decreased sufficiently, effectively leaving EVs and ULEVs taxed out of fleet car choice lists. Company car choice is determined by both the P11D cost of the vehicle and CO2 (via company car tax). If the tax rate rises before the cost of these vehicles falls – new ULEV or zero emission technologies are currently more expensive than older, less-efficient alternatives – then the ULEV option simply will not be financially realistic for most fleets and their drivers. The average annual income of a company car driver is around £30,000, so it needs to be financially attractive to persuade mass adoption.
A more radical but real-world consideration should be taxation rules regarding so-called ‘mobility budgets’. The industry has talked about these for a few years and our European counterparts are already working with them, but the UK taxation rules around it are non-existent, unclear or contradictory.
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By GlobalDataMobility is about thinking beyond the traditional company car, with a much more diverse approach to employee travel – a mix of company cars, pool or shared cars and public transport. This needs a taxation model based on usage of company vehicles or modes of transport that employees have access to on a short to medium-term basis.
Could we start looking at mobility budgets and taxation to drive smarter usage of our roads? If the government doesn’t consider this soon then employees are at risk of getting double taxed, e.g. paying BIK for a year on a pool car or corporate car share that may have only been used for one month or, in the extreme, for a handful of short trips.
Will CO2 emissions be the only basis for company car taxation from 2020? From a purely environmental perspective, CO2 isn’t the only element to consider in the mobility mix for the modern fleet. Remember, company car taxation has dramatically reduced the UK fleet industry’s CO2 output. However, with the issue high on the public and political agenda, concerns about NOx and diesel emissions will almost certainly come into sharper focus as the industry continues to evolve.
But vehicles don’t just emit CO2 when driven. There’s also a large amount produced during manufacturing – plus the delivery journey. That being said, will tailpipe emissions be the only criterion, or will we in future need to consider the wider CO2 output of the vehicle in terms of production? Or the CO2 output required to create the electricity to charge it? There are questions on whether anyone can measure this accurately, but we need to be aware of the wider CO2 output of a vehicle before it even gets on the road.
On a commercial and practical level drivers should also think about the amount of electric charge being used or being added to an EV. We need to incentivise people to use the electric driving capabilities of PHEVs to get the full environmental and financial benefits – a tax incentive is not enough.
Currently the tax benefit is all about having a PHEV, regardless of whether you use it correctly. Taxing drivers based purely on CO2 emissions remains a blunt instrument with diminishing incentives for drivers to select a ULEV as a company vehicle. It doesn’t recognise that a ULEV used on an incorrect ‘drive cycle’ will potentially emit more harmful emissions than a conventional ICE vehicle. With the World Harmonized Light Vehicle Test Procedure due to start next September will this further increase vehicles’ CO2 ratings, and so increase the tax burden for company car drivers?
If future company car tax bands are not just based on CO2 emissions, what else could be considered? It’s now widely believed, both socially and politically, that CO2 emissions are not the only thing the government and consumers are concerned about. NOx and particulate emissions are likely to be high on the agenda to ensure vehicles are not emitting NOx and pollutants other than CO2.
To do this, company car tax needs to encourage and incentivise the usage of PHEVs in the right way and how much the vehicles are being charged – not simply provide a tax advantage to have one.
Looking ahead, should hydrogen cars have special status in terms of zero company car tax benefit – as EVs did? While the cost of the technology remains prohibitively high and with infrastructure in its infancy, this exciting technology needs support if it is going to become a serious solution to our emissions challenges. As an aside, discussions on car taxation in the early 2020s need to start considering putting in place a framework for driverless ULEVs, which may only be one change cycle away.
How can we ensure fairness in company car tax for ULEVs? Significant technological advances in low-emission vehicles have been made over the past few years, and will only continue to progress. Where sub-100g/km-emission vehicles were once rare, they are now relatively common. Therefore the focus in future will be on the lower ends of the tax scale, with government, industry and business all eager to simplify the process.
There’s also the issue of fairness. There’s been much discussion of providing greater company car tax benefit to ULEVs with a greater ‘zero-emission’ range. However, if for instance an EV is only driven 30-80 miles a day and the driver is regularly topping up the EV and actually using it as it was designed, then why should it be taxed more heavily than a ULEV capable of 150 or 200 zero-emission miles?
Ultimately we want to increase ULEV and PHEV adoption, in addition to ensuring those driving them use them correctly – both for the financial and environmental benefits. So the government must consider the best mechanisms that will drive real-world ULEV adoption within the company car tax framework, as well as incentivising the right behaviour among company car drivers, providing a long-term strategy so business and drivers can plan their own strategies beyond the next vehicle change cycle.
❙ Author Matt Sutherland is COO at Alphabet
