Latest HMRC figures showing a further decline in the number of employees paying Benefit-in-Kind on company cars is “a shot across the bow to HMRC” on the continued need for attractive tax rates on EVs.

So says the fleet sector as the government data for the 2020/21 tax year reveals the total number of reported recipients of company car benefit was 720,000, down 80,000 or 10% from 800,000 in the previous year. The total taxable value of company car benefit also fell, down to £4.62bn from £5.43bn in 2019/2020.

The latest fall continues an ongoing decline from 2015/2016 when the number of takers stood at 960,000 – compared to then, the market in 2020/21 was down 25%.

The decline came despite the introduction of the 0% Benefit-in-Kind tax rate that year; a dramatic drop from the 16% rate in 2019/20 and significantly lower than rates for combustion cars. The zero rate was expected to dramatically hike up over demand – and the HMRC stats do show that fully electric cars accounted for 7% of car benefit recipients in 2021/21.

HMRC has warned that comparisons have been rendered more difficult “by incompleteness arising from the introduction of voluntary payrolling in April 2016”. Until April 2018 there was no requirement to report the details of voluntarily payrolled company cars. Reporting of these cars is now required but there appears to still be considerable underreporting, which may account for some of the reduction in company cars since 2015/16.

However, the Association of Fleet Professionals (AFP) has said the decline shows the need for continued low BiK rates to ensure EV momentum and support the Government’s net zero target.

Currently, BiK tables have only been published up until 2024/25, leaving businesses and employees with no indication of what the rate will be for 2025/26 and beyond.

And both the AFP and the BVRLA – and many leasing firms – have spoken of fears that the Government could suddenly increase Benefit-in-Kind on electric cars due to the misapprehension that incentives for EVs are no longer needed.

The AFP said this summer that increasing BiK rates too quickly would potentially affect rates of adoption by fleets and even potentially push people back out of electric company cars into private petrol or diesel alternatives. It’s called for a “fair and equitable approach over time”. The BVRLA – through its #SeeTheBenefit campaign – has also urged the Government to support the uptake of electric cars by keeping BiK rates low and giving foresight beyond the current 2024/25 cut-off.

Speaking about the BiK stats, AFP chairman Paul Hollick said: “I think it might be a warning shot across the bows for Revenue as well and hopefully will help with our dialogue with them around Benefit in-Kind tables post 24/25. Because it shows there’s still some more give in terms of extending the EV benefits for another couple more years.”

Ashley Barnett, head of fleet consultancy at Lex Autolease, also commented on the company car figures to Fleet World.

He said the decline was likely the result of “optional renumeration and rising tax values for ICE vehicles which, for many, have made company cars a less favourable option and led to some motorists opting for privately leased or used vehicles instead”.

He added: “It’s also no coincidence that we’ve seen an increase in EV registrations during this same period – at a time when Benefit-in-Kind tax has been 0%. These vehicles now account for 7% of company car benefit recipients. It’s evident the impressive uptake of EVs has been achieved, at least in part, because of the benefits of a company car tax system. Existing BiK tax rates expire in April 2025. Given long lead times for electric vehicles, a car ordered today on a four-year lease may not arrive until autumn 2023 – just 18 months before the tax rate ends. We would like to see long-term certainty and rates that encourage people to switch to EVs, to avoid the progress we have seen stalling.”

A ‘melting pot’ of statistics

Paul Hollick added that the AFP had been surprised by the figures – the view had been that the 0% BiK rate, followed by 1% in 2021/22 and then 2% for the current and next two tax years, would incentivise opt-out drivers to return to company cars.

He also reiterated HMRC’s concerns that voluntary payrolling had skewed the figures and added that Covid will have reduced the BiK numbers, due to drivers giving back their company cars in lockdown, ordering an EV and taking a cash allowance for a bit.

And Hollick drew attention to the current vehicle availability issues and record lead times due to the impact of current semiconductor shortages: “There’s a lot of people that are migrating into, and waiting for their vehicles, who aren’t represented in those numbers at the moment.

“A lot of leasing companies and brokers I’m talking to have got record order banks still. And a lot of these people aren’t effectively going to be ‘key-for-key’ replacing an old vehicle with a new vehicle.”

On the upside, Hollick said every AFP member he could think of was launching a salary sacrifice scheme at the moment or has a salary sacrifice scheme already in play.

“There was a recent announcement from Tusker to say they launched 300 salary sacrifice schemes in the first eight months of 2022, which doesn’t surprise me. The market is shifting radically but availability is holding everybody back.”

He summed up: “In fairness there will be a bit of a melting pot in these statistics. I don’t think the company car is dead, far from it. I think that it’s just warning shot across the bows to Treasury and HMRC that actually the car parc is still going down even in spite of this [low BiK] benefit. So, let’s try and nurture it for a little bit longer.”

Meanwhile, Matthew Walters, head of consultancy services at LeasePlan UK, said there were a number of theories as to why HMRC was continuing to report a decline in company car figures.

“The suggestion that voluntary payrolling has somehow skewed this year’s stats is, in our opinion, a red herring. Whilst it is optional for companies to use the company car flag when payrolling benefits, most companies choose to do so.

“It’s far more likely that the decline is a result of lower mileage due to Covid, soaring list prices and rising tax rates.”

LeasePlan also pointed out that former Chancellor Kwasi Kwarteng’s planned drop in the basic rate of income tax from 20% to 19% from April 2023 would have created a 5% reduction in company car tax “and could possibly have stimulated growth and turned the downward trajectory around”.

Falling company car numbers almost certainly mean grey fleet growth

Software firm FleetCheck said the figures probably also mean that grey fleets are growing quite rapidly; echoing the comments from the AFP.

The data suggests that more drivers decided to take a cash option during the pandemic, said MD Peter Golding, and are now using their own cars for business purposes.

He said: “There’s a relatively complex picture emerging here. Over the next few years, we expect overall company car numbers to grow as low-taxation electric vehicles come to form the majority of fleets. However, it also makes sense that in recent times, drivers who have been spending little time on the road because of lockdowns would want to opt out of the fleet and take a cash allowance, even if only temporarily.

“What this means is that we are going through a phase where a relatively large number of people have moved out of fleet schemes and are using their own vehicle for work purposes.”

Golding added that this potentially meant an increase in the proportion of drivers using their own cars quite intensively for business – and said the trend would doubtless place a greater emphasis on grey fleet management, particularly in companies where there had been a large-scale movement out of company cars.

“Grey fleet is, we believe, a generally neglected area of fleet management and this influx of new vehicles means that employers need to pay great attention to ensuring their house is in order in two key areas – risk management and the environment. Drivers using their own cars tend to opt for older, more polluting models, and this creates a lot of pressure to get these areas right.”

Golding added that it was also important to create a pathway for employees who had left the company car scheme to return at some point in the future – further emphasising the need for HMRC to offer attractive future BiK rates.

“A company car will nearly always be safer, more environmentally friendly and generally cheaper for businesses to run than a grey fleet equivalent. Employers need to make the advantages of moving into a very low-taxation EV as clear as possible to their drivers and encourage them to follow this route.”

Brand name no longer a big issue for EV fleets

On a separate note, AFP’s Paul Hollick also said that on the EV side, even manufacturers that a lot of fleet managers wouldn’t previously have thought about ordering vehicles from now have full order books as well – further highlighting the issues with vehicle availability.

“A lot of people, because they just need or want an electric vehicle ASAP, will now sacrifice the brand and the logo to get what they can get, in order to tap into the low Benefit-in-Kind. So, the winners in the market are really going to be the ones that have got their manufacturing arm set up to actually distribute stock into the UK and it will create the right bow wave to get the right vehicles to the right people at the moment.

“I don’t think anyone’s worried about waiting for the latest German brand at the moment to get themselves into an EV.”

Other key points from HMRC’s company car and fuel benefits data for the 2020/21 tax year include:

• The number of reported fuel benefit recipients was 60,000 down from 90,000 in 2019 to 2020, a more marked decline than for car benefit recipients. The total taxable value of fuel benefit declined from £470m in 2019 to 2020 to £320m in 2020 to 2021. HMRC said this would have been affected by the Covid pandemic travel restrictions in 2020 and a shift towards electric-powered cars.
• In tax year 2020 to 2021, only around 2% of company cars had reported CO₂ emissions in excess of 165g/km. By contrast in 2002 to 2003, 58% of company cars had reported emissions in excess of 165g/km.
• The average reported CO₂ emission of company cars including electric cars was 99g/km, compared to 111g/km in the previous tax year. For cars with internal combustion engines the average was 107g/km.
• The proportion of company cars using diesel fuel reduced to 49% in 2020 to 2021. Diesel cars accounted for around 80% of company cars up to 2017, with a steady decline through to 60% by 2019 to 2020.
• The number of reported recipients of company cars with CO₂ emissions of 75g/km or less was 137,000 (up from around 78,000 in the previous tax year). Fully electric cars accounted for 7% of car benefit recipients.
• The total taxable value of all Class 1A taxable benefits in kind was £8.9bn, a decrease of £1.5bn from the previous year.