Ashley Barnett, head of consultancy at Lex Autolease, discusses what the lack of clarity on company car tax rates beyond 2025 means for the fleet industry, and the impact it could have on the UK’s transition to electric.

Ashley Barnett, head of consultancy at Lex Autolease

The Spring Statement brought no update from the Chancellor on company car tax rates beyond April 2025, failing to bring clarity for fleet decision-makers and drivers considering switching to electric.

While it’s clear that Government is facing significant fiscal pressure as we rebuild from the pandemic and tackle the cost-of-living crisis, we shouldn’t lose sight of the transition towards a more sustainable future. Given that there was no announcement on company car tax tables in the Budget last autumn, there was some hope within the industry that the Chancellor would take the opportunity to bring much-needed clarity on the situation beyond 2025.

Instead, we will now be left waiting until October and hoping the Chancellor makes an announcement in the Autumn Budget for any further updates, making it significantly harder for fleets and drivers to transition to electric with confidence of the financial impact.

Fleet replacements typically operate in four-year cycles using Whole Life Cost (WLC), meaning that operators taking out a contract now will only have visibility of tax rates for the next two and a half years, rendering 40% of the tax element of the WLC an unknown quantity. The situation can be compared to being asked to take out a fixed-term phone contract, but only being informed what you’re agreeing to pay for half of it.

The EV market has seen impressive growth under current tax provisions in the last two years, despite the pandemic – last year alone, more than 190,000 new electric vehicles were registered in the UK, accounting for 12% of the new vehicle market. We need to continue and accelerate this over the next decade if we are to achieve the net zero ambition. While the increase in the variety of new EV models coming to the market, as well as improvements in technology and the UK’s charging infrastructure, have helped to encourage uptake, it’s undeniable that clarity over tax rates have been a significant factor in influencing many fleets and drivers to transition to electric. This lack of clarity beyond 2025 could create uncertainty and stall the good progress that has been made.

With just two fleet replacement cycles before the UK’s ban on new petrol and diesel vehicles, now is the time to bring clarity and continue to encourage the transition to an EV. Rising electricity and fuel costs have made motorists consider their options, and it’s important that we double down on encouraging EV uptake, not risk halting the momentum we have built.

The impact of this tax uncertainty is compounded by the significant lead times for new vehicles, caused by the semiconductor shortage, with some manufacturers facing delivery delays stretching into 2023. In the most extreme instances, this could mean that a vehicle eligible for the plug-in grant that was ordered today may no longer be by the time its delivered, representing a potential £1,500 increase in its cost to a fleet.

All of this uncertainty may lead fleet operators and drivers to delay replacement, resulting in an ageing UK car park where older, higher carbon-emitting cars are being kept on the road for longer, instead of being replaced by cleaner and greener models. This could seriously impact the UK’s progress in reaching its emissions targets.

It’s also important that, when clarity does come, BiK rates continue to delivery cost parity between EVs and ICE vehicles, helping make them a feasible option for operators. Any move to double-digit taxation rates would send the wrong message to fleets and car manufacturers alike, stalling adoption and putting the brakes on the progress that has been made.

Government has made significant headway over the past few years in encouraging EV manufacturers to bring their zero-emission vehicles to the UK, delivering a real boost to our green economy and driving the UK along the road to net zero. In order to ensure that the good work continues beyond 2025, it’s essential that Government provide clarity on company car tax rates, and that any changes remain gradual and proportional until we begin to see cost parity between some ICE and EV models.