FLEET CHIEFS FACE “UNPRECEDENTED CHANGE”, ACFO CHAIRMAN TELLS SEMINAR
Fleet decision-makers are grappling with an unprecedented volume of marketplace change, coupled with political turmoil and industry innovation in a time of national hesitation with Brexit looming large, according to ACFO chairman John Pryor.
He told 120 delegates attending the premier organisation for fleet operators’ autumn seminar, ‘The State of the Nation’, that in almost 30 years as a fleet manager he could not recall such a multitude of developments that were “leading to a perfect storm of bewilderment, misunderstanding and incomprehension”.
The seminar at Plant Oxford, the production home of the iconic MINI owned by BMW Group (UK), which along with business mobility and fleet leasing experts Alphabet GB and the British Vehicle Rental and Leasing Association (BVRLA) sponsored the event, heard Mr Pryor continue: “We know there are known unknowns; there are things we know - how to run fleets for our business for instance.”
But adopting the words of a now famous 2002 speech by then United States Secretary of Defence Donald Rumsfeld, Mr Pryor added: “We also know there are known unknowns; that is to say we know there are some things we do not know - how the Worldwide harmonised Light vehicles Test Procedure (WLTP) could affect us. But there are also unknown unknowns - the ones we don’t know we don’t know - Brexit.
“Who could have possibly thought that a statement from Mr Rumsfeld could actually make sense to the challenges fleet operators are faced with in 2017.”
He added: “Today it is not just the traditional company car, but how business needs to cope and manage the ever-growing portfolio of mobility. We are still all doing the miles, but how we travel that mile is now a different question.”
OpRA: New rules require close analysis as “proportionality” adds further complexity
Fleet decision-makers have been urged to closely study the impact of newly introduced Optional Remuneration Arrangements (OpRA) rules to ensure the tax changes do not detrimentally impact on employees and their business.
ACFO deputy chairman Caroline Sandall, director of ESE Consulting, told delegates that the rules that came into effect in April 2017 were having a “a ripple impact” across car salary sacrifice schemes and car or cash allowance programmes as well as impacting on employee car ownership schemes and so-called optimised cash allowance schemes that utilise Approved Mileage Allowance Payments.
Essentially the new rules were designed to mean employees opting for a salary sacrifice arrangement or taking a company car in lieu of a cash alternative paid tax on the higher of the existing company car benefit value and the salary sacrificed or cash allowance given up. However, car arrangements in place before April 6, 2017 are protected until April 2021 and ultra-low emission vehicles (ULEVs) - currently those with CO2 emissions of 75g/km or less - are exempt from the regulation.
“The overall impact maybe small, but it all depends on the profile of vehicle orders and the profile of drivers,” said Ms Sandall. “The tax changes are not the death knell, but they do require careful consideration.”
Suggesting that accurate computer programme modelling was vital to ensure OpRA solutions were “right” for employers and employees, Ms Sandall said: “The new rules remove some of the taxation and the efficiency benefits.”
FLEET CHIEFS FACE “UNPRECEDENTED CHANGE”, ACFO CHAIRMAN TELLS SEMINAR
What’s more, the impact of the changes are still coming to light and it was recently revealed that the new OpRA rules should only take into account the amount of salary sacrificed for the car itself thereby excluding vehicle maintenance, insurance, new tyres and roadside breakdown and recovery for example.
That means that the finance rental for a car and all other costs should be separated out with Ms Sandall highlighting that “proportionality” was now an issues for fleet decision-makers to consider in respect of OpRA.
Existing legislating stops such connected benefits as vehicle maintenance, insurance, new tyres and roadside breakdown and recovery from being taxed as a benefit-in-kind when employees are provided with a company car.
As a result, the minutiae of the OpRA legislation has now left tax experts expecting to discuss with HM Revenue and Customs (HMRC) how apportionment on a “just and reasonable basis” can be achieved when salary is sacrificed for a car benefit where part of the package is subject to the new OpRA rules and the other part is not under existing tax-related legislation.
One solution may be for a formula to be introduced to calculate what is “just and reasonable” that may see employees’ benefit-in-kind tax bills reduce slightly under OpRA, but will add another layer of complexity.
Ms Sandall added that the new rules would be “a challenge” for fleet managers as to how data was captured and “a challenge for some providers”. Furthermore, she predicted: “Driver understanding will be an issue. Salary sacrifice is fairly difficult to understand, particularly if coming out of a company car scheme, and apportionment will add to that complexity.”
Meanwhile, Jay Parmar, director of policy and membership, BVRLA, told delegates that some 98% of available cars were “unaffected” by OpRA with just 2% of salary sacrifice cars being subject to a tax rise as a consequence of the tax changes.
Additionally, he highlighted that employer Class 1A National Insurance “remained unchanged on more than half of vehicles available” and added that under OpRA “those efficiencies were still available to employers. It is a win-win situation”.
He added: “There has been a lot of focus on OpRA, but it is business as usual for our industry. The tax has changed, but the vast majority of vehicles are not affected.”
Tax issues: Further issues that fleet managers must focus on
Advisory Fuel Rates for plug-in cars: ACFO with widespread fleet industry support continues to lobby HMRC to publish Advisory Fuel Rates for plug-in cars. However, Ms Sandall, following further conversations with tax official, told the seminar: “HMRC still treats electricity as a power, not fuel, and has not confirmed any intention to amend. We are still having an ongoing battle, which we will continue to fight because with the volume of vehicles on the road companies need a rate.”
Van benefit-in-kind tax: ACFO is anticipating that HMRC will redraft benefit-in-kind tax rules applicable to light commercial vehicles with double cab pick-ups highlighted as a specific concern. The expectation follows a recent First Tier Tribunal, which ruled two Volkswagen Transporter Kombi models were cars, while a Vauxhall Vivaro was classed as a van. Ms Sandall’s seminar call for HMRC “clarity” was supported by Mr Parmar, who said: “There is a need to modernise some of that antiquated legislation.”
Taxation of benefits-in-kind and employee expenses: The government, following a spring Budget 2017 call for evidence, is considering how the tax system could be made fairer and more coherent, including by looking at the taxation of benefits-in-kind and employee expenses, which includes Approved Mileage Allowance Payments. Ms Sandall urged fleet managers to watch out for a public consultation on the issue and concluded: “There is an awful lot going on with tax and the impact could be massive for some fleets.”
FLEET CHIEFS FACE “UNPRECEDENTED CHANGE”, ACFO CHAIRMAN TELLS SEMINAR
Diesel is a fuel of the future, says BMW corporate sales boss
Diesel is a “massive part of the automotive landscape and very much part of the future”, Steve Oliver, general manager, corporate sales, BMW Group (UK), told the seminar.
Amid national media headlines “demonising diesel” for its impact on air quality in towns and cities across the UK, Mr Oliver said diesel technology would continue to advance.
Stressing that diesel engines were 20-30% more fuel efficient than similar capacity petrol engines, Mr Oliver said BMW was “committed to driving the development of diesel technology further”.
Nevertheless, with the BMW Group having celebrated its centenary last year and global trends including the environment, increasing urbanisation, politics and regulation, economics, culture and customer expectations driving the future of sustainable mobility it was vital for fleet managers to match “the right model with the right powertrain with the right driver”.
Amid the ever-increasing rise in the availability of plug-in hybrids and 100% electric vehicles - the MINI Electric will be produced at the Oxford plant and launched in 2019 - Mr Oliver said: “Diesel remains a strong contender for long-distance driving.”
However, he added that for fleets the days of only having a company car choice list comprising diesel vehicles or, equally, only plug-in hybrids with the advent of new technology “was not the mature approach needed”.
Highlighting the requirement for a balanced approach to company car choice compilation he explained that diesels met the requirement for distance driving, electric and hybrid technology met short journey demands with petrol-engine models sandwiched in between.
“Diesel is not just a fuel today, it is a fuel of the future. It has longevity,” concluded Mr Oliver.
Company car optional extra strategies to change with arrival of WLTP
Fleet and vehicle manufacturer strategies on company car optional extras are expected to be reconsidered with the introduction of the new vehicle emissions and MPG test procedure, known as the Worldwide harmonised Light vehicles Test Procedure (WLTP).
Until now, vehicle options have not impacted the defined carbon dioxide (CO2) levels of cars with the exception of wheel size, number of seats and transmission type.
But WLTP takes into account all options added to a vehicle - such as tyres, alloy wheels, aero body kit, air conditioning, leather upholstery and a sunroof - thus making the variation in CO2 levels - and thus tax rates - significant. Such options impact on a car’s rolling resistance, weight and aerodynamics and thus will impact on a model’s WLTP CO2 emissions performance.
The new vehicle mileage and emission testing regime was introduced this month (September) to replace the 20-year-old NEDC (New European Driving Cycle) procedure and is designed to provide fleet operators and company car drivers with a more realistic ‘real-world’ driving view of the data.
WLTP is being introduced in two phases:
The results of WLTP MPG and emissions testing is that, in most cases, official vehicle MPG figures will be worse than equivalent NEDC figures, while CO2 emissions figures will be higher. Industry experts have suggested that CO2 figures on a car-by-car basis could increase by about 20% with introduction of the WLTP.
Markus Oberfeld, an efficient dynamics and driving performance engineer in BMW’s research and development centre in Munich, told the seminar the new emissions testing regime was “a significant change for the industry which will affect all motor manufacturers”.
In a bid to help fleet operators and company car drivers, BMW is developing for launch by September 2018 an ‘individual CO2 value per vehicle’, which will be integrated into an online car configurator aimed at giving users transparency as they add options to their base vehicle of choice. Depending on each option chosen and its impact on emissions the CO2 figure for the applicable car will change immediately in real-time.
During a lengthy seminar discussion around the impact of WLTP, the consensus was that motor manufacturers may increase their range of vehicle option packs making fewer single options available.
It was also suggested that depending on how vehicle options were packaged by manufacturers, as well as their impact on CO2 emissions and therefore tax, company car drivers may select fewer options.
Mr Oliver said: “We offer a lot of options and there is a massive focus on this issue and how we can make it easier for fleets and business users.”
However, with regard to vehicle-related taxes - company car benefit-in-kind tax, Vehicle Excise Duty and capital allowances - currently linked to the NEDC test, HM Treasury has yet to decide when to link the tax system to WLTP data. Industry speculation suggests that 2020/21 could be the financial year for changes to be introduced.
During a Q&A session, that timeline was supported by Mr Parmar who holds regular meetings with HM Treasury and HMRC officials.
He said: “Company car tax bands have been published until 2020/21 so it makes sense to use NEDC data until then and then switch to WLTP.”
Furthermore, with vehicle CO2 emissions forecast to be higher with the introduction of WLTP, Mr Parmar confirmed: “HM Treasury does not see WLTP as a tax-raising development; it is viewed as a transition. Changes in the way vehicles are being tested should not be seen as a mechanism for raising more tax.”
New lease accounting rules: fleets have nothing to fear so keep calm and carry on
New lease accounting standards effective from January 1, 2019 will not “fundamentally change the commercial benefits of leasing”, Mr Parmar told the seminar.
Explaining that the development, following 10 years of debate, was being introduced to give company balance sheet transparency with assets and liabilities recognised, he said the majority of firms in the UK were unaffected by the changes.
That’s because they only apply to PLCs and public bodies and there was no date for the UK accounting standard, Generally Accepted Accounting Practice, to follow the approach being introduced by the International Accounting Standards Board.
Attention to the new lease accounting standard, known as IFRS 16, in the fleet operating and vehicle leasing sectors is mainly focused on its requirement for assets financed via operating lease - contract hire - to be brought on-balance sheet.
But, highlighted Mr Parmar, businesses chose to contract hire cars for numerous other reasons than an on- or off-balance sheet requirement. Those reasons included: sheltering companies from the risk of fluctuating residual values, providing them with extra flexibility and purchase power and freeing-up precious working capital, the ability to recover VAT and benefiting from fixed monthly motoring costs.
“Fundamentally nothing changes,” Mr Parmar told delegates. “It is a technical accounting change. It does nothing to change the fundamental benefits of leasing so keep calm, it is business as usual.”
Leases of less than 12 months - as well as costs associated with issues such as vehicle maintenance and end-of-contract excess mileage and damage charges - are outside the scope of the new rules prompting speculating that there could be increased demand for short-term hire.
However, cold water was poured on such suggestions by Mr Parmar during a Q&A session, who said the monthly cost of 12 months contracts would be more expensive than longer contracts to reflect increased residual value volatility.
He added: “I don’t think a fleet would move to 12 month contracts to avoid the accounting changes. Vehicle leasing is more about commercial value to a business.”
Asked if the lease accounting changes would impact on demand for flexible rental, which effectively sees a fleet able to hire vehicles for an extended period of time with no contract termination date, Mr Parmar said: “The lease accounting rules are all about transparency. It is a conversation that businesses will need to have with their auditors.”
Fleets to benefit from increased DVLA digitalisation
Fleets are set to benefit as the Driver and Vehicle Licensing Agency (DVLA continues its roll-out of more digital services.
The DVLA has introduced a number of new online services in recent years including its fleet vehicle management portal, which is currently used by more than 600 companies responsible for some 1.69 million vehicles.
Designed to reduce fleet vehicle administration and delivering financial savings, Alison Avo, corporate services relationship manager, operations and customer service directorate, DVLA, told delegates, the organisation was looking to extend the range of services currently available via the portal while also encouraging greater take-up among fleets.
The fleet scheme, which is applicable to companies operating more than 50 vehicles, currently enables managers to obtain a raft of information including which vehicles need taxing and when and MoT renewal dates.
ACFO is a member of the DVLA’s Fleet User Group and Mr Pryor asked if portal access could be extended to fleets that leased vehicles as currently, in those circumstances access was limited to lessors.
Meanwhile, the seminar heard that the DVLA’s long-awaited digital driving licence service - enabling drivers to view their licence on their smartphone - is currently in private beta testing and would move into public beta and go live in 2018.
Also on the DVLA’s digitalisation agenda is a development that could see vehicle insurance data included on driver records, which ACFO believes is particularly important in terms of the compliance management of ‘grey fleet’ vehicles - employees that drive their own cars on business trips.
Alphabet’s new ‘Intrapreneur Lab’ harnesses innovation for future mobility initiatives
More than 150 ideas have been received by business mobility and fleet leasing company Alphabet GB from employees relating to new products and services that could be developed to further improve customer service with emerging technology.
Seminar sponsor Alphabet GB has recently established an ‘Intrapreneur Laboratory’ to encourage its employees to create ‘internal start-ups’ - backed with tangible support, advice and funding by the company - with a view to turning ideas into reality.
The company is celebrating its 20th anniversary in 2017 and chief commercial officer Simon Carr said with the emergence of Mobility as a Service (MaaS) and the launch of services such as Alphabet’s own AlphaCity corporate car sharing initiative, the continuous investment in technology was crucial to “enhance the customer proposition”.
Looking forward to the company’s 40th anniversary and transition from “a full-service leasing to a full-service mobility solution” provider, Mr Carr said: “For the next 20 years Alphabet will continue to look at more efficient and effective ways to deliver connected sustainable mobility in which the car and commercial vehicle will continue to play a vital role.”
And, as Alphabet with its employees support, invests in the development of new corporate mobility solutions, Mr Carr urged fleet operators to “approach your suppliers to use new technology to deliver real-world fleet efficiencies”.