We live and learn, but it’s extraordinary to reflect on the fact that it was a mere 20 years ago that the UK government sought to end the practice of offering company car drivers tax discounts if they used their cars for more than 2500 business miles (earning a one-third discount) or more than 18,000 miles (two-thirds).
Back then, it was well known that some drivers on the cusp of a tax break would take to the roads to earn it. Never mind the planet, a few laps of the M25 could save them big chunks of cash – which was probably spent on a holiday that threw a few more tonnes of CO2 into the atmosphere…
Times change, thankfully. A recent report revealed the number of drivers claiming company car benefits on our roads continues to fall: 720,000 last year, down from 800,000 in 2020. From 2010 to 2016, it held steady at around 900,000 to 950,000, highlighting the drop as another step-change accelerated by the pandemic.
The cars that are being run are cleaner, too. Just 2% reported official CO2 emissions of more than 165g/km. Back in 2002, 58% topped that threshold. Last year, around 20% (137,000 vehicles) posted emissions of less than 75g/km, while 7% were fully electric. The average company car today emits 99g/km, or 107g/km if you exclude electric cars.
The previous tax year, it was 111g/km. That’s impressive, given that ‘just’ 49% of company cars were CO2-efficient diesels, down from around 80% as recently as 2017.
Likewise fuel benefit, which was taken by a third fewer drivers than the year before (60,000 versus 90,000). That’s a shift from 11% of company car drivers receiving the benefit down to 8%, albeit again affected by greater uptake of electric cars. Again, the pandemic played a part (why pay tax on a benefit you can’t use?), so it’s reasonable to assume that it may fluctuate back up again, but it’s another illustration of the shift that working from home has facilitated.
For the planet, these are sizeable percentage jumps in the right direction, albeit tempered by the fact that some people will simply have switched from a company car to a private one. For the Exchequer, though? Less so. The total taxable value of company car benefit was £4.62 billion in the tax year 2021-22, compared with £5.43bn the year before (an £810 million drop).
And the taxable value of fuel benefit was £320m, down from £470m (and down from £770m in 2010-11). In these straitened times, something has to give, and we can all guess what will follow: the generous discounts for low- and zero-emissions cars will quickly erode and tax on unelectrified cars will soar.
Join the debate
Add your comment
Maybe, just maybe the government could tailor the tax laws to not only raise revenue but to aid the drive to a greener future to. Car drivers with even a sniff of an option of a 'company' car have always made that decision on the basis of what leaves most in their own pocket. It seems ridiculous tax wise to have such low taxable benefit laws for battery cars when alternate ICE cars with very low pollution levels are so high. People will still switch to E-cars so long as they pay less tax. The gap doesn't have to be huge. Equally the nation needs a huge stock of well maintained, cheap (ish), used E-cars and the company car conveyor belt remains ideal to give us that. So incentivise cheaper company E-cars, make more expensive cars less tax wise attractive. Yes, some highly paid executives may howl with outrage but so long as it remains cheaper to company source they will stick with it and even if they don't the nation will still gather the 40% on the taxable income when they buy their own. The vast majority of these purchases are BMW, Audi, Merc and Volvo anyway, and these do nothing for our trade balances or UK growth and employment, so we shouldn't be using UK tax policy to help them in any way.