By Matthew Walters, Head of Consultancy Services, LeasePlan

Numerous businesses across the country rely on company cars, not only for their operational function but as an important component to an attractive reward scheme to entice and retain employees. Consequently, it is crucial for organisations to keep abreast of new policy developments and tax changes that will financially affect fleets and company cars.

Therefore, with the dust from George Osborne’s fairly bland 2014 Budget beginning to settle, it is a good time to explore the upcoming developments and their financial implications for fleets and company cars.

Employees who receive a company car will be taxed on the benefit in kind (BIK) liability associated with the vehicle, otherwise referred to as ‘company car tax’. The exact taxation figure will depend on numerous factors and is often designed to incentivise low emission vehicles. However, whilst more environmentally friendly vehicles are traditionally more tax efficient, it is important to bear in mind that the rate for cars with CO2 emissions of 76-94g/km has risen from 10% to 11%.

Unfortunately, despite pressure from the leasing industry and manufacturers, the Government also choose to stand by their previously announced decision to scrap the 0% benefit in kind tax for company cars with emissions up to 50g/km. This year’s Budget also saw the unwelcome news that company car tax rates for the years 2017-19 and 2018-19 are set to increase by 2%.

Whilst this continues to impact the employee, employers should also consider the cost implications as the taxable benefit has a direct link to the amount of National Insurance paid by the company.

In essence, company car costs are increasing for both employer and employee, consequently increasing the significance of a carefully considered vehicle choice, which takes into account the whole life costs.

Organisations must stay vigilant to tax changes and be willing to adapt their fleets, in order to benefit from the most cost effective solution. It is also important to consider the fleet funding structure, which can have an equally significant financial implication for businesses. With a range of funding options available, each with their own pros and cons, financing a fleet in the most effective manner possible can be a difficult process to navigate. However, it is worth taking the time to assess the various offerings, in order to find a solution which best meets the individual needs of your particular organisation.

With almost three million company cars on the road in the UK, motoring policies and company car tax changes will continue to be high on the agenda for the Government. Fortunately, many of the changes discussed in this article will not come as a surprise. In line with recent years, policy changes have been announced up to five years in advance of their implementation, providing a crucial foresight which should be utilised when making informed fleet decisions.