Vehicle whole life costs should be the critical basis on which a company selects its vehicles to operate. It’s essential to understand this if you’re currently reassessing your fleet with the new vehicle registration plate ‘69’ coming out on 1 September.
When compiling your list of potential vehicles, be aware that cars which may cost the same in terms of list price or monthly lease rental are not the same. They do not compare in terms of cost per mile to operate.
The principle of basing choice lists on whole life costs can help both employers and employees. For employers, it can save money. For employees, even if the complete life cost figures on two models are identical, a different CO2 emissions figure will influence the level of benefit-in-kind tax due.
The real ‘whole life cost’
Taxation is a significant factor. Two manufacturing regulations were introduced in 2017 but will drastically increase taxes from April 2020. These are WLTP (Worldwide harmonised Light-duty vehicles test procedure) and RDE (Real Driving Emissions Test).
There are three main ways in which fleets will be affected – because WLTP means more accurate and therefore higher emissions figures. Some cars could push into higher tax bands. The taxes that will be affected include:
- Company Car Tax (CCT)
- Class 1A National Insurance Contributions (NICs)
- First-year Vehicle Excise Duty (VED)
- Corporation Tax Relief (The changes to CO2 figures may push some cars over the threshold for the 100% first-year allowance [50g CO2/km] or the first-rate [110g CO2/km].)
The new regulations will also have an effect on Ultra-low Emission Vehicle (ULEV). Currently, the definition is one that emits 75g CO2/km or less. With the new regulation, some cars may be pushed above this threshold by WLTP tests.
This test could also remove those cars’ eligibility for certain financial benefits, including:
- The Plug-in Car Grant
- 100% discount on London’s Congestion Charge
- Exemption from fees in forthcoming Clean Air Zones around the country.
How will WLTP effect van taxes?
Fewer van taxes link to emissions – at least currently – so the effect on tax bills will be relatively limited. However, the Government is working on linking VED for vans to emissions. They intend to consider the effect of WLTP on emissions data – and structure the new VED system accordingly.
How will RDE affect whole life cost?
RDE tests have been designed by the European Commission to tackle the large discrepancy between the emissions levels recorded in laboratory tests and those produced on the road. This test is particularly important when it comes to assessing nitrogen oxides (NOx).
RDE tests take place on real roads. Vehicles are fitted with a Portable Emissions Measurement System and driven for 90 minutes on urban and rural roads, as well as on the motorway.
So in the future, new cars and vans will have to meet the Euro 6 standard, which sets limits for emissions of NOx, carbon monoxide and particulate matter.
How to avoid risk when choosing the right vehicle for your fleet
Basing company car policies on whole life costs means naturally excluding the worse performing cars, so organisations are naturally managing their risk.
Add to this the concern that these recent legislative changes will impact you as a business owner; there are other factors coming up too. Such as the 2040 ban on petrol and diesel vehicles, or the clean air strategy where drivers are starting to see Clean Air Zones (CAZ) pop up in cities across the UK.
To help manage all these factors, Fuel Card Services has Fleet Toolbox. Offering four terrific services designed to boost your fleet cost-efficiency, meet your legal compliance and your duty of care responsibilities.
Our fuel card customers can enjoy all of these services free for three months, then continue for a small monthly charge of £5.