Lee Wolstenholme's blog: Businesses can't afford to ignore April's main rate threshold reduction
27 April 2018
Brussels has decreed that by 2021, average car CO2 emissions must have been squashed right down to 95g/km, a move I completely agree is necessary if the environment is to be cleaned up with any pace. Whether or not the UK will have to meet this challenging figure is still unclear against the backdrop of Brexit, but organisations have more immediate financial shifts to grapple with in the meantime anyway.
Since 2009, businesses keen to enjoy the benefits of contract hire have been able to deduct the cost of their vehicles' monthly lease rentals from their taxable income. From the 2013 financial year onwards, HMRC set a level of 130g/km CO2 over which a flat-rate corporation tax disallowance of 15% kicked in, so fleets have naturally received encouragement from various sources to keep their average emissions below this limit.
April 2018 will be associated by many fleet managers with the introduction of a reduced main rate threshold of 110g/km CO2 and I was concerned to learn from Kia UK's comprehensive study of 150 fleet managers that 73% of them still have an average higher than this new ceiling, while around a third still appear to be operating with 130g/km in mind. This tallies with my own recent findings. It's even more troubling to hear that 30% of the fleet managers surveyed didn't even know what their vehicles' average CO2 emissions currently stand at.
For organisations leasing vehicles from this point on, it's essential that they factor the new main rate threshold into the ever-increasing algorithm they face when shortlisting cars and vans. The 100% first-year capital allowance on low-emissions vehicles was also amended down to 50g/km last month, but the hybrid versions of the Prius and Ioniq for example have NEDC CO2 emissions in the high-70s, meaning fleets need to focus on plug-in hybrids to limbo-dance under the new ceiling. PHEVs require commitment, though, and my experiences indicate that company car drivers often neglect regular battery recharging, negating the environmental benefits even if their businesses enjoy the financial pluses.
When assessing which fuel to opt for, most organisations and individuals were traditionally advised until recently that diesel is still the right choice for drivers covering over 20,000 miles annually. Now, though, with improved electric cars like the second generation Nissan Leaf coming with WLTP ranges of over 160 miles, it's conceivable that such a vehicle could be suitable for a wider number of business drivers - providing they can be disciplined.
With WLTP homologation and testing now under way by most OEMs, the next few years are admittedly going to be the most complex in a while for SMEs and larger firms to ride out, but I can see the landscape settling down nicely after that and decisions becoming more straightforward.
Lee Wolstenholme is managing director of Vehicle Consulting