New VED tax regime will hit car rental industry, warns BVRLA

The new Vehicle Excise Duty (VED) regime will hit the car rental industry with a 400% tax rise, damaging its ability to purchase the newest, cleanest vehicles and provide affordable mobility to millions of customers.

So says the British Vehicle Rental and Leasing Association (BVRLA) which has called on the government to rethink the new scheme.

The changes to the current VED regime, announced by then Chancellor George Osborne in his emergency Budget of July 2015, were intended to create a new roads’ fund by the end of the decade.

VED or road tax currently raises around £6bn for the Exchequer, but the amount has been falling in line with decreasing carbon emissions.

As a result, by 2017 three-quarters of new cars won’t pay VED, a move which Mr Osborne said at the time was not sustainable or fair.

Instead, from this April,  a new VED system is being introduced  and, while there will be no change to VED for existing cars, all new cars  will see their tax rates set in the first year according to their emissions, like today, but updated for new technology. After the first year, there will be three duty bands – zero emission, standard and premium.

For high carbon emitting vehicles, this will lead to large increases in the first year with, for example, cars that emit 151-170g/km of CO2 facing a first year charge of £500.

For standard cars, some 95% of all cars sold in the UK , the charge from April 1, will be a flat rate £140 per year for the second year onwards. This is less than the average £166 that motorists pay today, although the new system is expected to raise the same amount of revenue as today.

VED bands and rates for cars first registered on or after April 1

*After the first year, cars with a P11D value over £40,000 pay an annual supplement of £310 for five years.

However, a new report from Oxford Economics, commissioned by the British Vehicle Rental and Leasing Association, has found that the rental sector will be unfairly hit by the new charges, as well as the removal of the opportunity to claim a full refund for any unused first-year tax.

The report found the average duty paid for rental cars, which have a typical fleet life of nine months, will rise from £36 in 2016 to £170 from April 2017. As a result, the rental sector’s overall first-year VED bill will rise 400%, from £11m in 2016 to £55m in 2017, with the lack of refund responsible for £14m of this.

The BVRLA has now called on the Government to defer or stagger the VED increases and allow owners to obtain a full refund of any tax outstanding when a car is sold in the first year.

“Our members are facing a 400% increase in one of their main tax bills, and the inability to claim a refund on any unused portion of the VED is totally inconsistent with usual UK tax policy,” said BVRLA Chief Executive, Gerry Keaney.

An analysis of BVRLA member data indicates that the industry will buy 24,800 fewer cars in 2017 as a result of the changes, which will have a major knock-on effect on the environment.

The vehicle rental sector helps drive the uptake of newer, cleaner vehicles in the UK, with the average rental car being Euro 6 compliant and emitting 22% less CO2 than its privately-owned counterpart.

The VED changes, says the BVRLA, will slow the rate at which these cleaner cars are brought on fleet and subsequently sold into the second-hand market. This could have a particular effect in the urban areas, where around 25% of rental cars are located.

Further analysis from Oxford Economics shows that the reduction in car registrations will reduce GDP in the UK by £84m and see a £23m fall in tax receipts.

There is also a potential VAT loss resulting from fewer cars being purchased and thus disposed of in 2017, with the BVRLA calculating that the Exchequer could face a VAT shortfall of almost £74m this year.