The Current State of the Company Car Market

For businesses that require drivers and commercial vehicles on a daily basis, there are several methods of financing your vehicles, from vehicle hire and grey fleets to salary sacrifice and company car schemes.

For many businesses, offering their employees a company car is the most efficient and economic method – and for many employees, the offer of a company car is a company benefit that is a big motivator. But just how popular are company cars? Car business leasing specialists, Rosedale Leasing, take a look at how the company car market is currently performing:

The Current State of the Company Car Market
Image Credit: pexels

Business is Booming

In 2014, the company car market was excelling, taking a hold of half of the UK’s entire new car market. In fact, every other car sold in the UK was a company car. According to the Society of Motor Manufacturers and Traders (SMMT), there were over 2,476,435 new cars registered throughout the year, suggesting that over 1.2 million company cars were registered in 2014!

The market appears to have continued to grow. In 2016, company cars were a key driver in the UK’s new car registration growth. The company car market continued to account for over half of the new car registration figures, with 51% of new cars registered for fleets, while business use accounted for a further 3.9%.

In total, 1,380,750 cars were registered for fleet use, with 105,786 for business use – compared to just 1,206,250 for private registrations. However, popular trends appeared to mirror across both markets, with the Ford Fiesta (46,840 registrations), Volkswagen Golf (43,393), Vauxhall Astra (43,144), Ford Focus (43,037) and Nissan Qashqai (36,381) proving the most popular for company cars, as well as private buyers.

This growth is present across more than just the UK. Across Europe, company cars are stealing almost 60% of the total new car market in countries such as Germany and Sweden.

In Arval’s 2017 Corporate Vehicle Observatory (CVO) report, 39% of UK respondents said they currently offer their employees a company vehicle option – whilst 14% offer a company car or cash allowance options to all drivers, and 21% offer them to just some of their drivers. Only 3% of companies only offered a cash allowance to their drivers, showing the popularity and preference of company cars.

In November 2016, the UK Government’s Autumn Statement revealed that benefits in kind from an employer to their staff (company benefits) will be limited when offered through a salary sacrifice scheme – with plans to revaluate how benefits in kind are valued for tax purposes. The company car tax will see no drastic changes until 2020/21.When the respondents from the CVO report were questioned whether the UK Government’s Autumn Statement 2016 about company cars and cash allowances would change their current policies, 39% said they would only offer company vehicles. 29% said the statement would lead them to offer both to their drivers, while very few would give up their company cars for alternative driving methods such as car sharing.

Benefit In Kind Tax

In the UK, company cars come hand-in-hand with company car tax – also referred to as Benefit In Kind tax (BIK). This type of tax is implicated on company benefits that are not cash benefits. In this case, the company pays for the vehicle and you pay a benefit in kind tax instead.

In 2014/15, 52% of BIK tax was paid for company cars. The tax you pay is generally based on the list price of the vehicle and its CO2 emissions. According to the HMRC, in the financial year 2015/16, approximately 960,000 employees throughout the UK paid benefit in kind tax on a company car, which was just a 1% increase on the previous financial year’s figure. In addition, 9% of BIK tax was paid against car fuel – with approximately 180,000 employees paying this tax. Over half (60%) of all taxable benefits in kind were attributed to company car and fuel taxes.

The Future

Now that the government has announced their plans to clean up the UK’s air quality by 2040, the future of the petrol and diesel car market appears to be uncertain. With clean air zones and entry charges in the pipeline too, many businesses might need to adopt electric vehicles into their fleet instead. For the majority of businesses, this won’t be such a negative thing. According to the Telegraph, fleet managers are already anticipating that the proportion of eco-friendly models within their remit will increase to 42% by 2020, with similar predictions forecast for hybrids and electric vehicles.

The CO2 emissions of a car can have a major impact on the amount of BIK taxes that need to be paid. For company car drivers and fleet managers, their company car tax (BIK tax) could potentially reduce by driving a vehicle with lower, or even zero emissions. For employers, using electric vehicles as part of their fleet means they will also benefit from corporation tax relief and allowances, and lower National Insurance contributions too. In addition, car fuel benefits can almost be eliminated as electric ‘refuelling’ becomes low cost, saving money for both businesses and their company car drivers.

Wilko is a full-time motoring journalist with an obsessive interest in all things automotive.