What impact will the Autumn Statement changes have on engagement with ultra-low emission vehicles?

Not only did Chancellor Philip Hammond use his first Autumn Statement in November 2016 to abolish the traditional autumn interim economic and financial update, he also confirmed that the government will limit the range of benefits that attract tax and employer national insurance (NI) advantages when offered through a salary sacrifice arrangement.

But, while these changes will impact upon car salary sacrifice schemes, the message to employers from providers is very much not to assume car salary sacrifice is also somehow disappearing or being abolished.

David Hosking, chief executive of Tusker, says: “Salary sacrifice has not been abolished, all that has changed is the tax benefits for some schemes have disappeared. In fact, given the way benefit-in-kind tax bands have been changing anyway, all that has really happened is the government has brought some tax efficiencies forward.

“We have ended up where we would have been anyway in around two years. But what we have also got now is clarification that salary sacrifice schemes for cars will continue, through ultra-low emission vehicles (ULEVs).”

Changes ahead

So, what will be changing? There will be new tax bandings for the lowest-emitting cars from April 2020, with 15 new bandings being introduced, of which 11 will be for ULEVs, or those with CO2 emissions of up to 75g/km.

On infrastructure, the government pledged to invest £390m by 2020-21 into the development of low emission and autonomous cars and renewable fuels, including £80m into the UK’s ULEV charging point infrastructure. Until the end of March 2019, the government is also offering 100% first-year allowances to organisations investing in charge-points for electric cars.

Employee engagement

All these changes, naturally, will need to be communicated clearly to employers and employees in order to raise awareness and increase engagement with ULEV schemes, says Matthew Walters, head of consultancy services at LeasePlan. “We welcome the fact ULEVs have been carved out,” he explains. “There is definitely going to be an education piece for employers, and we will of course be working closely with our salary sacrifice customers.

“If [employees] pick the ‘right’ car, in other words if [they] choose the most environmentally friendly vehicle, [they] will not be affected. So it is very much ‘steady as she goes’. Yes, there is a new set of rates and it is perhaps a bit more complicated but, from the benefits point of view and employee retention, the benefit is still definitely there.”

While the government’s intention in the long run is to encourage investment, and interest, in ULEVs by employers and employees, there may well be a rush to put in place non-ULEV schemes before the April cut-off, given the nature of the transitionary arrangement. Communication to employees should emphasise that salary sacrifice is still going to be a good option if they opt for a ULEV.

Gerry Keaney, chief executive of the British Vehicle Rental and Leasing Association, says: “Salary sacrifice schemes are an extremely valuable employee benefit and the certainty provided by the Autumn Statement means this won’t change.

“[ULEVs] will continue to receive the full savings and advantages of these and other car benefit schemes, and we expect the demand for this kind of car to surge thanks to the government support provided via the plug-in-car grant and tax incentives for workplace charging.”

There will also be a job for providers to work with, and educate, employers in terms of best practice around ULEVs and to communicate the impact of the longer-term tax changes coming over the horizon, says Lauren Pamma, head of consultancy at Lex Autolease. “What’s important now is that employers not only communicate the changes announced in the Autumn Statement to allow employees to make fully informed choices, but also help to educate colleagues about which technology is best suited for their journey patterns and how to correctly operate ULEVs,” she explains.

“For instance, one of the traps we see drivers falling into currently is failing to charge their plug-in hybrid cars at every opportunity. Improving driver education will help employees and the [organisation’s] fleet benefit from the full cost savings and environmental benefits of switching to these types of cars.

“The watch-out for employers in the short term is that tax on ULEVs is rising up to 2020. Employers and employees will need to consider the tax burden of the car over its lease period, which is typically three or four years.”