The New Year could mark a sea change in company car demand due to a combination of significant revisions to benefit-in-kind taxation and the continuing tough economic climate increasing pressure on personal budgets, according to ACFO.

    Despite company car benefit-in-kind tax increases for most drivers in 2012/13, the UK’s premier organisation for fleet decision-makers believes that careful vehicle selection aided by the continuing focus by motor manufacturers on driving down emissions as a result of technological advances will encourage employees out of cash allowance schemes and back into company cars.

    Company car benefit-in-kind tax thresholds will tighten by a further 5 g/km on April 6, 2012 but, crucially, the special 10% rate for vehicles emitting 120 g/km or less, which has been in place since April 2008, will be abolished.

    That means drivers at the wheel of company cars emitting 115-119 g/km will see their benefit-in-kind tax bills rise almost 50% in the new financial year as vehicles are catapulted into the 14% tax bracket from the 10% threshold. Meanwhile, drivers of 120 g/km emissions models will have to fund a 50% rise as vehicles move into the 15% bracket.

    Employees driving a company car with carbon dioxide emissions up to 99 g/km will continue to see their tax bill unchanged with those at the wheel of vehicles with emissions of 100 g/km to 114 g/km moving into the 11-13% tax thresholds. Ironically, drivers of cars with emissions of 121-124 g/km will see no increase in their tax bills as vehicles will remain in the 15% tax bracket, while those driving cars with emissions of 125 g/km or higher will see bills rise as emission thresholds tighten 1%.

    Therefore, ACFO says the steep rises at the lower end of the benefit-in-kind tax scale will significantly influence vehicle choices being made over the coming weeks and months.

    Chairman Julie Jenner said: “Evidence suggests that with personal budgets being squeezed due to the global economic crisis, drivers are firmly focused on how much tax they are paying and their disposable income.

    “Although almost every driver will see their company car tax bill rise from April 6, 2012, analysis reveals that it is significantly cheaper to pay tax on a company car than to run your own vehicle.”

    The RAC recently calculated that the average annual cost of owning and running a car had soared 14% in the last 12 months – three times the current inflation rate – to almost £6,700.

    Ms Jenner said: “A basic rate taxpayer eligible for a company car need pay no more than £50-60 a month in tax for that vehicle and a 40% taxpayer could select, for example, a BMW 5 Series, for less than £150 a month even taking account of the 2012/13 tax rises.

    “Employees cannot run their own cars for that amount of money. Although company car benefit-in-kind tax rates will increase for 2012/13, drivers and employers alike should do their own calculations and they will realise that through the careful selection of low emission vehicles, a company car is the financially astute choice in these austere economic times.”

    Ms Jenner added: “Economic conditions mean that all employees are much more focused on the cost of living. If cash allowance drivers calculate the cost of funding and running their own vehicle, including service and maintenance bills, they will be pleasantly surprised to discover that they can be better off by opting back into a company car.”

    A further 1% company car tax rise is due in 2013/14 and ACFO has already called on the Government to announce in the spring Budget benefit-in-kind tax rates for the following three or four years to aid vehicle selection planning by employers and employee alike.

    Meanwhile, the New Year could be the year when fleet demand for the new breed of electric cars truly takes off.

    Until now only pure electric cars have been available as an alternative to petrol or diesel powered models, but 2012 is due to see the arrival of plug-in hybrid (Toyota Prius and Volvo V60) and extended range models (Vauxhall Ampera and Chevrolet Volt).

    “Pure electric vehicles may be suitable for some urban, low mileage fleets, but for the vast majority of businesses they are not viable on a number of counts including operating costs, residual value uncertainty, range and the lack of a viable recharging infrastructure,” said Ms Jenner.

    “However, the imminent arrival of plug-in hybrids and vehicles equipped with range extenders make the electric option a more realistic alternative for many fleets as some of the concerns, particularly around driving range and recharging, are overcome.

    “As these vehicles still have an internal combustion engine they will provide a useful stop gap for fleets that want to show their environmental credentials until fully-fledged electric vehicles are a more viable option.”

    Despite the imminent arrival of such vehicles the Government has yet to announce funding levels to aid their acquisition through the Plug-In grant scheme. Tax incentives of up to a maximum of £5,000 have only been agreed until March 31, 2012 with a review due early in the New Year.

    Ms Jenner said: “The Government has a clear carbon-cutting agenda but in announcing future benefit-in-kind tax levels for petrol and diesel powered models as well as the new breed of electric alternatives, the tax structure must not run ahead of technology.

    “Company car drivers and businesses require a vehicle choice and if choice is restricted and tax bills become too punitive, the Government risks driving employees into cash alternatives. That is accompanied by inherent risks ranging from reduced revenue flowing into Government coffers to drivers selecting older cars with higher emissions and fewer safety features than if they had stayed in company car schemes.”

    With reference to the Plug-In Car Grant scheme, Ms Jenner said: “An initial £43 million pot was set aside to fund electric car acquisition, but demand has been so low that only around 1,000 vehicles have been bought. However, that should not put the Government off continuing to fund the scheme.

    “The fleet industry requires certainty and the ability to plan for the long-term. That can only come with the Government committing to retaining the scheme for several years and announcing grant levels for the next three or four years and not on an annual basis.”

    Finally, in reference to the Government’s Autumn Statement decision not to cut fuel duty immediately, Ms Jenner said: “Fuel prices at current levels are simply unsustainable. We hope fuel prices will fall in the New Year and that will have a positive impact on the economy and cash flow for businesses and private motorists alike.

    “However, if there is no respite then the Government must look again at its fuel duty strategy in the spring Budget. We are very mindful that in the Autumn Statement the Government did not cut duty but merely dropped a January 2012 increase and reduced the planned August rise from 5p a litre to 3p a litre – pump prices need to fall.”