As in all walks of financial life, legislation shapes
markets, but the vehicles sector seems prone to even more shifts in policy than
most. The government just can’t seem to leave it alone, because vehicles and
travel provide targets to subjects dear to its heart: tax, health and safety and
This year is no different, with a raft of changes, the most high-profile for
fleets being the way capital allowances are worked out for company cars, brought
into line with other areas of government thinking on vehicles and their taxation
in April. It is aimed at getting people buying and driving lower-polluting cars
through fiscal punishment and incentive.
Under the new system, companies buying cars for themselves, or leasing
companies purchasing vehicles to lease on to customers, need to place cars
emitting more than 110g/km of CO2 and up to, and including 160g/km, in a 20%
writing-down allowance pool, while those over 160g/km go into a 10% pool.
The issue for fleet managers is that many of the cars above 160g/km are more
expensive and, especially in the current market, depreciate more heavily in
their first few years. This means that after their disposal there is still a lot
of tax relief on depreciation to be claimed back and as a result, it could take
a very long time to see them worked off the balance sheet.
In terms of cashflow, the new rules mean capital is tied up in these
depreciating assets for many years and, in the case of higher emitting cars, for
much longer than under the previous regime years, even. For many cars in the
20% pool, the allowances claimed will leave a balance of around 20% of the
original cost new for an average car, once disposal proceeds are removed from
the pool. It will take around 11 years to claim 90% of this balance against tax.
This is still an improvement on the situation for those using higher emitting
cars. First, cars below 160g/km are often cheaper and depreciate less in cash
terms. As a result, it will take half the time to claim back the allowances as
for the cars over 160g/km.
According to leasing company Alphabet, the difference between the old capital
allowances regime and the new CO2-based system discounted back to today’s
values – will be as much as £2,000 for the largest executive cars. For leasing
companies, it is likely they will have to increase rentals to mitigate against
the extra time and money it will now take to claw back the depreciation, but,
for the most part, the change to the rules makes leasing more attractive for
companies managing fleets rather than outright purchase.
“Considering the VAT advantages of leasing remain untouched, many suggest
that cars with CO2 emissions of less than 160g/km should be leased and cars
above 160g/km should be considered on a case-by-case basis,” says David
Rawlings, a consultant at fleet cost and environmental advisory Business Car
The legislation is now in line with company car tax and Vehicle Excise Duty
(VED), which, since 2002, has been related to the CO2 emissions produced by each
car based on a sliding scale, with the highest emitting cars ultimately
incurring more tax relative to their cost new. Currently, the tax take goes from
10% to 35% of the car’s taxable P11D value a car’s basic cost plus the cost of
delivery and accessories, but not including the first registration fee. The
taxable percentage works on a scale that goes in steps of 5g/km of CO2, from
120g/km up to a maximum of 225g/km. Above that, all cars are taxed at the
maximum possible percentage of 35% irrespective of emissions.
Until recently, the lowest a car powered by traditional means could be taxed
at was 15% for petrol and 18% for diesel. Since April 2007, there has been a 10%
rate designed to incentivise drivers toward the lowest emitting cars on the
market. Any driver choosing a company car with CO2 emissions of 120g/km or less
qualifies for the 10% rate.
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However, it does come with some provisions. All diesel cars have a 3%
surcharge over petrol cars of the equivalent CO2 level, in order to account for
the extra particulates and nitrous oxide they produce.
As well as raising fuel duty by 1.84 pence per litre on 1 April this year,
the 2009 pre-Budget report confirmed that fuel duty will increase again on 1
April 2010, by 0.5 pence per litre above indexation.
While the six new, much-criticised Vehicle Excise Duty bands will still be
introduced as planned in 2010 and VAT is expected to return to 17.5%, too –
Chancellor Alistair Darling relented on increases that would have hit residual
values of larger, higher polluting cars hardest. In 2010, the maximum increase
in VED will be capped at £5, while in 2010 the maximum will be £30.
From next April, in order for the new bands to “create an environmental
incentive”, the government will start to separate the 13 differential rates. As
a result, cars producing less than 150g/km of CO2 will see a cut in their VED of
up to £30 per car.
Cars up to 175g/km of CO2 will see no increase in their VED, while those of
176g/km of CO2 and above will see a tax increase of between £20 and £30. From
April 2010, a differential first-year rate for new vehicles will be introduced.
Cars that emit more than 225g/km of CO2 but were registered between 1 March 2001
and 23 March 2006, will be moved into the new ‘K’ band in 2009 and stay there in
2010 meaning they maintain their exemption from the top rate of VED.
When the government introduces first-year rates for newly purchased cars next
year, new cars with less than 130g/km of CO2 will pay no VED in the first year
of use, whereas the very highest-emitting cars will pay £950.
In the past decade, companies running their own fleets have operated under the
spectre of the forthcoming corporate manslaughter legislation. The Corporate
Manslaughter Act introduced in last April heightened the duty of care employers
can reasonably be expected to show putting pressure on fleet managers to prepare
for compliance by shelling out on everything from driver training and journey
scheduling to driver declarations and eye tests. It was strengthened this
January with the introduction of the Health and Safety (Offences) Act 2008,
which aims to stop companies from turning a blind eye to problems or safety
issues in their fleet. It has raised the maximum penalty sums that can be
imposed on companies that are found to have contravened the legislation and has
also made it effectively easier than before for a court to impose stronger
penalties or sentences.
That said, GE Capital Solutions reports that in the three months to last
November the new corporate manslaughter legislation had declined in influence on
fleet decision making by 21%, while health and safety and accident prevention
had followed as recession became a reality.
Compliance comes down to what is ‘reasonably practicable’ in company fleets:
ensuring servicing is completed regularly, keeping an audit trail of
documentation to prove it, checking licenses regularly and making sure employees
are fit to drive. It is worth remembering, whenever a company selling the latest
innovation to save you from yourself and your drivers approaches, that all your
drivers are subject to the rules of the Highway Code and laws pertaining to road
safety. If they know they are not fit to drive, or they hide points on their
license from you, it is their responsibility. If you have asked them, and they
lie, they are the ones in trouble.
Duty of care
What the Act has changed is the way in which a company could be prosecuted. It
allows for a company to be found guilty either through a gross breach of duty of
care by a senior manager or by the company. Previously, an individual had to be
found guilty, which proved almost impossible and only a handful of this type of
prosecution has been made in the past few years. If successfully prosecuted, a
company could find itself subject to a massive fine as much as 10% of its
However, a company would become liable only if it was found that it had been
doing something that caused a driver to cause an incident, such as forcing them
to drive unacceptably long hours, or talking to them on a mobile phone. More
likely to have an impact is a supplier doing a bad job and the fleet management
failing to rectify the issue despite knowing about it. For example, if a company
performed sub-standard servicing and the fleet failed to act, resulting in a
mechanical issue causing a fatal crash, then the company could be found liable.
For companies that keep a full audit trail of work, are able to prove that
work was done when it should have been, has good systems for checking drivers’
licences and fitness to drive, and ensures employees understand their
responsibilities when on the road, they should have nothing to fear if the
authorities came knocking.