UK tax changes signal potential NVES outcomes

A REPORT from UK publication Fleet News has detailed how incoming tax changes for dual-cab utes is about to reshape the definition of multi-purpose vehicles for British buyers.

The change in tax structure will see dual-cab utilities recognised as company cars from July 1 this year, upping the cost of ownership for affected models significantly and making such vehicles “an untenable choice for many”, according to Society of Motor Manufacturers and Traders (SMMT) chief executive Mike Hawes.

A transition period means affected vehicles already on fleets and on order are exempt from the new definition, potentially leading to a rush of dual-cab ute orders in the run up to the July 1 deadline as seen prior to the debut of New Zealand’s now-defunct Clean Car Discount scheme.

It comes at the same time as Australia seeks to implement its New Vehicle Emissions Standard (NVES), which could impact the price of dual-cab utes if costlier emissions-reducing tech is implemented or importers seek to recoup from customers the value of any offset credits they have to purchase.

The prospect of these potential price increases raises concerns that mirror those outlined in the British Fleet News report.

According to the report, the decision to reclassify dual-cab utes as cars by default will hit the bottom line of fleets, because cars are more expensive from a National Insurance Contributions (NIC) perspective than commercial vehicles (a definition that will still apply to single-cab utes and vans).

The report says this is also true of any associated fuel benefit provided by employers.

It will mean the BIK (Benefit in Kind) tax (similar to Australia’s Fringe Benefits Tax) paid by employees will rise by “thousands of pounds a year”.

Currently, in the UK, all utes are subject to a fixed benefit of £3960 ($A7640) whereas under the new rules, a Ford Ranger becomes a £22,200 ($A42,800) benefit with significant BIK tax implications for employees and NIC costs for their employer.

“Double cab pick-ups are critical business tools for many companies and sole operators across Britain, particularly in rural areas and in the construction sector,” said Mr Hawes.

However, it seems the British government’s decision is aimed at closing a loophole that cut the tax bill for employees with a company car provision or allowance, effectively incentivising them to choose a larger and higher-emitting vehicle than they would have otherwise.

Although unpopular with the SMMT (Britain’s counterpart to the Federal Chamber of Automotive Industries in Australia), the dual-cab ute reclassification has been welcomed by others for introducing clarity to what qualifies as a commercial vehicle and for harmonising the definition across different areas of taxation.

“The HMRC’s decision to tax them as cars rather than commercial vehicles for benefit-in-kind (BIK) purposes will raise costs significantly and make them an untenable choice for many,” continued Mr Hawes.

“The move risks stalling the overall market and its decarbonisation, as businesses will be likely to hold on to older vehicles for longer.

“With the new rules due in July, there is insufficient time for industry to adapt to such a major policy change, and the sector believes that it would remain fairer and simpler to use a vehicle’s type approval as the basis for all tax purposes.”

Interestingly, Mr Hawe’s comments draw many parallels with Mitsubishi Motors Australia Limited chief executive Shaun Westcott’s remarks made last week.

Speaking to GoAuto at the launch of the sixth-generation Triton in South Australia, Mr Westcott’s sentiments echoed those of Mr Hawes, saying the changes are a case of too much, too soon for many working-class buyers.

For UK buyers, the HMRC will no longer interpret the legislation that defines car and van for tax purposes in line with the definitions used for VAT (Value Added Tax) purposes.

This VAT approach for dual-cab utes is differentiated based on payload, with anything under one tonne classified as a car, and anything over a tonne as a van. This rule was replicated as a “pragmatic way” of resolving the primary suitability and classification of dual-cab utes.

From July, the classification of dual-cab utes will be determined by assessing the vehicle at the point that it is made available to determine whether the vehicle construction has a primary suitability as a workhorse or as a recreational vehicle.

“This finally brings clarity to an area of company car taxation that has been dogged by technical arguments for some time and, in some respects, removing that degree of confusion is very welcome,” said Association of Fleet Professionals deputy chair Matt Hammond.

“The transition period put in place by HMRC is both welcome and fair and should give fleets time to make new arrangements as well as allowing manufacturers time to align their model ranges with the new regulations.

“Some fleets and drivers will no doubt feel this unfairly removes some vehicle choices they would like to make but bringing the rules into line with VAT makes some sense.”

With almost all dual-cab utes sold in the UK being classified as company cars – and attracting BIK from July 1 – employees will also face having to pay more tax.

However, the HMRC has put in place so-called transitional arrangements so that both employers and employees do not incur higher taxes for vehicles already on their fleets and on order – something many believe the NVES will need to recognise locally.

“The most common double cab pick-up in the UK is the Ford Ranger with a list price of circa £60,000 ($A115,690) and CO2 emissions of over 200 grams per kilometre, putting it squarely in the 37 per cent tax bracket meaning a BIK of circa £22,200 ($A42,800) a year leading to employee tax of £8880 ($A17,120) a year for a 40 per cent taxpayer or £13,320 ($A25,680) a year at 60 per cent tax or £1110 ($A2140) a month,” explained Innovation Tax and Mileage Consulting Group co-founder John Messore.

“If free private fuel is also provided (which it probably should be historically as it is currently a no brainer at such low levels of tax) that is a combined benefit of £32,486 ($A62,640). This will have an additional Class1A NIC cost of £4483 ($A8645) to the employer, whilst the total tax for a higher rate taxpayer is £12,994 ($A25,055) per annum.

“Under the current rules, provided the payload of the pick-up is one tonne or over then by concession, it is taxed as a van benefit in kind meaning £757 ($A1460) fuel BIK and £3960 ($A7640) benefit for the van.”

As many in Australia have already proffered, the UK’s tax changes will potentially discourage the purchase of new dual-cab utility models, likely seeing the withdrawal from market of those importers whose business model relies heavily – or in some cases solely – on the sale of light commercial utility models.

Further, and as seen recently in New Zealand, the introduction of such a scheme may see a ‘rush’ on current dual-cab models as buyers seek to avoid the new tax.

“If you want to take advantage of the old concession you need to order the vehicle before 1 July,” added Mr Messore.

Changes to dual-cab utes sold in the UK from July 1*:

*Data supplied courtesy of Fleet News.