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Company car market declines as tax rises bite

The number of UK employees taking company cars fell by 20,000 during the last tax year, as rising tax burdens continue to take their toll on demand.

Toy car on pile of money

The HMRC estimates indicate that driver take-up of company cars continues to decline

Newly published Benefit in Kind statistics from HMRC show an estimated 940,000 drivers paid Benefit‐in‐Kind on a car in 2016/17 – down 2% from 960,000 the year before.

Yet actual tax liability of those cars increased to £1.85bn – up 24% from £1.49bn the previous year despite the 2% reduction in the number of drivers taking the benefit. Meanwhile the NIC liability increased from £600m to £630m.

The report showed that although the overall number of recipients of taxable Benefits in Kind decreased slightly to 3.66 million in 2016-17, the total taxable value increased to £8.3bn. HMRC added that the main cause of this is believed to be the increases in the appropriate percentage for company car tax.

The report also showed a sharp increase in the tax take from company cars since 2008/9 despite plummeting take-up. In 2008/9, 1.01 million drivers took company cars – equating to £1.2bn in tax liability.

Take-up of ‘free’ car fuel as a benefit also continues to decline – in line with growing recognition that this is not a tax-friendly solution. A total of 160,000 drivers received this benefit in 2016/17 – down from 180,000 the previous year – while the tax take increased from £250m to £260m.

The figures follow ongoing warnings from a number of fleet specialists that drivers are continuing to opt out of company cars as their tax bills rise – backed up by latest BVRLA data showing that take-up of personal contract hire continues to erode the fleet market.

Earlier this year, former JLR UK managing director Jeremy Hicks predicted that growing numbers of drivers will opt out of company car schemes over the coming years, due to WLTP changes and unclear taxation benefits, as well as the 2017 switch to a new VED regime and the diesel taxes announced in last year’s Budget.

And consultancy firm BCF Wessex recently told Fleet World that such market conditions were beginning to favour a revival of ECO schemes, which it said can now offer better value for businesses.

However, Maxxia Group has warned employers to be cautious about the risks of cutting drivers off from company car schemes, as this can increase costs and exposure to risk.

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Natalie Middleton

Natalie has worked as a fleet journalist for 16 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day. As Business Editor, Natalie ensures the group websites and newsletters are updated with the latest news.