HMRC pockets £1.4 billion at the expense of company car drivers

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Fleet managers and company car drivers will be waking up to deliveries of new 16 plate vehicles this week. However for many, the new car smell will be overshadowed by the bitter taste of higher taxes following the Government's decision to postpone the abolition of the 3% diesel surcharge.
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When the Chancellor announced in 2012 that the 3% diesel surcharge would be scrapped in April 2016 the industry rejoiced. Even with the vast improvement in petrol engine technology in recent years, diesel engines could not be matched in their low CO2 emissions and high fuel efficiency capabilities. Having moved away from the 'dirty diesel' tag of the 1990's thanks to significant developments in technology, four in five company car drivers find themselves in a diesel powered vehicle today.

Despite their low levels of CO2 output and frugal nature, diesel engine cars still collected a 3% higher benefit tax in comparison to their petrol rivals. One figure that few of us look into when selecting a new vehicle is the level of Nitrogen Oxide (NOx) produced. NOx exhaust emissions are one of the major environmental factors thought to be contributing to global warming. Government and environmental agencies keep a close eye on NOx levels.

Diesel engines produce higher levels of NOx when compared to petrol engines due to the nature of their design and operation. Lean burn cycles give a great return in fuel efficiency by limiting the amount of diesel injected into the engine. The oxygen intake is not limited though. Following ignition, high levels of oxygen and nitrogen remain in the cylinder. Combustion is achieved via compression and this in-turn results in a higher burn temperature. it is this high temperature that causes the oxygen and nitrogen to react and produce high levels of NOx.

So why has George Osborne chosen to delay the scrapping of the diesel surcharge?

The Chancellor explains that his decision comes on the back of "slower-than-expected introduction of more rigorous EU emissions testing". Granted, the VW emissions scandal has provided a wake up call to the industry. We all know that results seen in laboratory testing tend to fall way short of those replicated in real world driving. However, if you have a standardised test cycle on which to run engines in the lab, every manufacturer worth their salt is going to tune their engine to perform to specific parameters within what is actually a very small operating window of the vehicle.

With the benefit tax being calculated against the CO2 emissions of the vehicle, Mr Osborne's indirect reference to the VW emissions scandal, in relation to NOx emissions, will feel like a kick in the crotch - or at the very least a hit to the wallet of car drivers. The typical company car driver will now be £150 worse off per year whilst the business will be paying £106 more per vehicle in NIC's.

Matthew Walters, Leaseplan’s head of consultancy services, told Fleet News: “The way the Government used the emissions scandal as a reason for postponing the removal of the surcharge was dreadful.

“The cynical view on it would be that the politicians looked at the £1.4 billion they would lose out on company car tax and saw that fleet drivers were an easy target. They waited until they won the election to deliver the bad news in the Autumn Statement.

“The really sad thing is that company car drivers are getting used to being treated like this. I would urge Mr Osborne to use caution because fleet drivers are important for our economy and at the moment he’s treating them like cash cows."

So what can the 1 million company car drivers do?

Don't discount petrol engines, especially if your annual mileage is fairly low. The efficiencies of the smaller turbo charged petrol engines will rival that of diesels, provide enough bottom end torque and offer the kind of red-line thrills that no diesel will ever be able to deliver. Take the Audi A4 fitted with a 1.4 L TFSI engine. The small power house outputs 150bhp and returns nearly 55mpg combined. Ford's acclaimed Ecoboost engine clears 140bhp from a 999cc engine block that is smaller than an A4 piece of paper!

Those who need a motorway-munching diesel as their everyday workhorse need to look at what they can claw back from the Government. With 500,000 drivers having the 'perk' of a fully expensed car, ABAX would urge drivers to consider opting out of the fuel benefit and paying for their own private mileage. As the tax rates rise, most drivers would need to be driving in excess of 20,000 private miles per year before the benefit actually benefits them. ABAX' research has found that coming away from a fuel benefit system saves the average driver £1000 annually. Fleet managers then benefit from not having to shell out for private fuel or the NIC's associated with the fuel benefit.

/ Chris Miller