Pendragon Vehicle Management's Divisional Managing Director, Neal Francis, takes a closer look at the recent budget announcement and explains what the increase in Vehicle Excise Duty Tax really means for company car drivers.
Whether you are a Fleet Manager, company car driver or Fleet Decision Maker, what did you take from the Chancellor's latest budget announcement? Increased Benefit in Kind tax, potentially a reduction in future levels of writing down allowances?
Although these two changes have been commented upon, the key factor which seems to have been overlooked is the increase in Vehicle Excise Duty tax, or VED. From the 1st April 2017, this change will impact all vehicles, especially the cost of fleet vehicles, and will require businesses to either budget accordingly or review their vehicle policy.
The announcement highlighted two main changes:
1. Only vehicles with zero emissions will be exempt from the first year road fund licence
Although a large number of vehicles are currently exempt from the first year road fund licence, from 1st April 2017, only those vehicles with zero CO² emissions will be exempt from the charge.
From Year 2 onwards VED rates have increased for all vehicles to £140 other than pure electrics.
Therefore, whether you're a private driver or leasing company, the level of vehicle excise duty you will incur is on the increase.
2. There will be an additional supplement of £310 per year to pay on vehicles with a list price above £40,000
Drivers or businesses will also face an additional charge when the car exceeds a retail value of £40,000. An additional increase of £310 per year applies for these more expensive vehicles.
Please note that vehicles registered before the 1st April 2017 will continue to pay the current tariff and avoid these new higher VED rates.
The True Cost of the Changes
These new changes will greatly affect the cost of ownership, for both private users and, in particular, companies with fleets of vehicles. An example of the cost is shown below, for a car emitting 99g/km over a three year period:
£400 increase in VED for vehicle retail value below £40,000 = £11.11 per month per vehicle
£1,020 increase for cars worth over £40,000 = £28.33 per month per vehicle
For a fleet of 100 cars, this equates to £13,332 extra VED per annum for vehicles under £40,000 retail value or £33,996 if all vehicles were over £40,000 retail value as at 1st April 2017.
The Future Outlook
As a result of the significant hike in VED rates, we expect to see an increase in cars with a list price of £40,000 being registered in March 2017, therefore avoiding these VED increases. Equally our advice to fleets is to order early and change vehicles prior to 1st April 2017 rather than extend vehicle contracts. By purchasing cars before 1st April 2017, drivers and businesses will be able to pay the current VED rates and save themselves or their businesses between £400 and £1020 over a three year period.