"QUALEC Effect" hits new vehicle orders
Data gathered by the leasing company reveals that 45% of new car orders will fall into the 100g/km to 120g/km tax band and be hit by the "QUALEC Effect". These vehicles, as well as any existing company cars emitting more than 99g/km of CO2, will soon be subject to a higher tax burden.
The future cost increase is attributed to HMRC’s decision to lower the 10% tax threshold from 120g/km to 99g/km in April 2012, as part of a revision to the benefit in kind (BIK) charge system for company cars.
Lex Autolease calculates that only 8% of cars ordered will qualify for the new 10% company car BIK tax band (76-99g/km).
So, despite recent efforts by manufacturers to launch sub-120g/km vehicles and fleets’ or drivers’ decisions to adopt these, many will face a Company Car Tax increase with an adverse impact on Employers National Insurance contributions (NIC) as well.
Based on a fleet of 500 vehicles, comprising a mix of VW Golf 1.6Tdi 105 Match and BMW 318d SE emitting 119g/km, this will generate an annual increase in Employers’ NIC costs of over £60,000.
For an employee, driving the same BMW 318d, they will be hit with a yearly BIK increase of £216, if they are a 20% taxpayer, and £432 at the 40% tax rate.
Paul Lippitt, Principle Consultant at Lex Autolease said: 'No fleet is likely to escape the QUALEC Effect, unless they are operating an entirely sub-99g/km policy and there aren’t many of those about. We’ve raised the issue ever since the new tax thresholds were confirmed at the last Budget, but we suspect that a large number of firms have not yet taken pre-emptive steps to mitigate the impact and inform their employees.
'Senior management may be less concerned if they have recently taken delivery of a low-emitting BMW 5 Series or Volvo S80, and can stomach the additional BIK, but the cost increase will come as a shock to middle and junior managers.
'From a corporate perspective, larger fleets will notice a measurable increase in costs on their bottom line. Most lease periods run over three or four years, so there is no getting away from the impact in a hurry. In fact, the thresholds will continue to reduce in 2013/14, so companies need to be aware there are further tax increases in the pipeline.'
Lex Autolease says that fleet and drivers seeking to avoid this April’s tax changes need to consider sub-99g/km cars, or even sub-95g/km, to prevent another hike in April 2013.
Currently, there are over 200 model/trim levels outputting exactly 119g/km, which will be taxed at 14%* instead of 10%* in April 2012, rising to 15%* in 2013.
In this category, businesses and drivers will find perennial executive favourites like the BMW 5 Series 520d (EfficientDynamics), BMW 3 Series 318d (SE to Sport trims) and BMW 1 Series 118d (SE to Sport trims).
* Add 3% for diesel models
Major work horses like the Volkswagen Golf S 1.6 TDI 105 Match and Volkswagen Passat 2.0 TDI BlueMotion Tech also fall foul of the new thresholds, so many essential users will naturally lose out.
Paul Lippitt concluded: 'Anybody choosing these types of vehicles on the sole basis of managing their BIK exposure will be left disappointed in April. Companies need to actively review their fleet policies and develop plans to adopt sub 99g/km models, which will support the driver’s need to manage BIK costs and the corporate objective of cost reduction.
'There’s around 200 model/trim levels currently available at or below the 99g/km threshold, which shows that there is the opportunity to redesign policies and incorporate a percentage of these vehicles within their overall fleet mix.'
Lex Autolease Strategic Fleet Consultancy has extensive experience of providing best practice, impartial advice and can help companies redesign car policies to balance the objectives of cost reduction and vehicle desirability.