Gain Certainty and Take Control of Your Employee Car Benefit

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Reflecting Back Over 2022…

Last January, we began the year with the Great Resignation – an after effect of Covid-19. The UK job vacancy market hit an all-time high with people re-evaluating the workplace and their finances as inflation rates started to rise. Therefore, an attractive benefits package played a key role in retaining employees. The semi-conductor shortage made providing a car benefit problematic, as stock on the ground wasn’t always available. Extensions and re-financing of current car fleets were common, reducing relative benefit value as employees were paying Benefit-in-Kind (BiK) on older vehicles. 2022 also saw a number of decisions made by the Government including the National Insurance increase and reversal, the lowering of income tax (from 20% to 19%) being brought forward and then scrapped completely, and the BiK announcements in the Autumn Statement. All of these had an effect on delivering employee benefits, and left the majority of the UK wondering what the Government would announce next. With so many contributing factors influencing how effectively an employee car benefit can be delivered, let’s review the facts and discover what changes you might need to consider for your company car fleet.

Clarity of Costs

During the Autumn Statement the Government confirmed that the BiK rate for Electric Vehicles (EVs) would remain frozen until 2024/25 as planned. It also announced increases for the subsequent tax years, up to and including 2027/28. The release of these figures was well received as it does provide clarity for BiK for the next five years. But overall, how much certainty do we have when it comes to providing car benefits in the workplace.

Beyond Benefit-in-Kind

We know that despite the BiK rates on EVs being low over the past few years, we’ve still seen the cost of EVs surge. The Plug-in Car Grant (PiCG) originally made EVs more affordable, but as of June last year, the grant was removed. List prices have risen due to the semi-conductor shortage and price increases for raw materials have been spurred on by the war between Russia and Ukraine. With reduced supply and long lead times to get new EVs into the UK market, as well the rising inflation rates, we’re seeing the cost of financing a company car increase, which has a direct impact on the delivery of a car as an employee benefit. So, we might have certainty on the BiK rate of an EV car from the Government policy, but we don’t have clarity of other costs such as interest rates, basic price increases, inflation and supply and demand.

28% Increase in basic price since Jan 2020
Average basic price taken from a fleet of c.2,000 CBS drivers between 2020 and 2022.
Benefit-in-Kind to Rise by 150%

While BiK rates do incentivise the take up of EVs, there’s no getting away from the fact that having an EV as a company car is going to cost you more in five years time. The increase of BiK by one percentage point per year from 2025 might not sound much, but in reality it will rise by 150% in just three years.

Tax Year 2022/23 2023/24 2024/35 20025/26 20026/27 20027/28
Tax Rate
2%
2%
2%
3%
4%
5%
Company Car Tax - 20% MRT
£160
£160
£160
£240
£320
£400
Company Car Tax - 40% MRT
£320
£320
£320
£480
£640
£800
Car Tax - 45% MRT
£360
£360
£360
£540
£720
£900
The table above outlines the increase in BiK using an EV with a P11D value of £40,000.

The Future of Company Cars

5 The take-up of EVs is continuing to increase yearon- year, however, it’s estimated that only 2%-3%* of cars in the UK currently are electric or hybrid. It’s likely there are a number of contributing factors to this figure. For some drivers it could be the high price tag, for others it could be range anxiety, accessibility of the charging network, or they’re simply just not ready to make the move to EVs. As we see the rental price of EVs increasing and other associated costs for a car benefit on the rise, how affordable is it for your 20% tax payer employees? Additionally, if using a salary sacrifice arrangement, your employees’ take-home salary can’t be taken below minimum wage. Making it difficult for you to provide a sustainable optional benefit for all employees.

Rates for all other vehicles bands including Internal Combustion Engine (ICE) cars and hybrid vehicles emitting more than CO2 75g/km will be increased by one percentage point for tax year 2025/26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026/27 and 2027/28. For every single car (apart from those already at the maximum of 37%) there will be an increase in BiK. So, whatever vehicles currently make up your car fleet, you’ll see a rise across the board.

 

*National Statistics. Vehicle Licensing Statistics: July to September 2022. Published 13 December 2022.

The Reality of a Pay Rise

You might think a pay rise for employees is the answer. However, with the tax free allowance of £12,570 and the higher rate threshold of £50,271 both frozen, a pay rise could actually reduce the take home pay. A higher wage will increase the income tax and BiK paid by the employee on their salary, as would the BiK for employee benefits. Employees at the upper end of the standard tax rate threshold, could see a 100% increase in BiK for their car benefit, if a pay rise made them a 40% tax payer instead of 20%. With so much uncertainty in the economy, inflation rates still over 10.7%^ and further energy price increases expected in April, how can we manage our finances and provide employees with the best possible support?

Company Car Tax

Giving an employee a pay rise could result in company car tax doubling for those on the edge of the tax threshold.

0%MRT
£247 per month
0%MRT
£493 per month
Calculation based on P11D value of £40,000 and Benefit-in-Kind of 37%

Inclusive Employee Car Benefits

With uncertain times ahead, employee benefits will be important for staff retention, so being able to offer mobility solutions for your entire employee population is essential. Flexibility is key. There isn’t a one size fits all when it comes to providing employee car benefits.

Partner with us and be assured that we’ll offer you an inclusive solution that meets your business needs. Our solutions are inclusive. Whether you and your employees need ICE vehicles or EVs, are company car drivers or you already provide a car benefit scheme, we have a solution for all your business and employee needs.

It’s essential to be agile and adaptable to Government or market changes. With Car Benefit Solutions, you can be confident that you’ll receive the right employee car benefits that could include a combination of delivery methods, all from a single benefit provider.

^Office of National Statistics. Consumer Price Inflation, UK: November 2022.

Why Choose Us?
Customer Centric
We take pride in putting our customers at the heart of everything we do. From solution design to launch and beyond, our team is dedicated to ensuring we add value to your business.
Creative & Innovative
We don’t do out of the box. Using over 20 years’ experience and expertise in employee car benefits, our innovative solutions are designed to meet your business strategy and budget.
Flexible
Our business is built on flexibility and is central to our products, service and funding options, so you’re always in control.
Inclusive Solutions
Our solutions go further than a traditional car benefit. Whatever the vehicle make, model or fuel type, we’ve got a solution for every business, every driver and every need.
Full Solution Management
From beginning to end, we’ll take care of everything, including technical and compliance management, leaving you free to focus on driving your business forward.
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We’re continuously developing our systems to meet customer needs. Our bespoke operating system makes managing your car benefit easy and hassle free.