United Kingdom

Last modification: 11 Jan 18

Chapter 1: Economic and business environment


65.1 million (2015)



Major cities

London, Birmingham, Manchester, Liverpool, Newcastle, Bristol, Edinburgh, Glasgow, Cardiff, Belfast




£1,939,637m (2016)

Unemployment rate


Main industries

Financial services, IT, construction, oil and gas, government, healthcare


Pound (sterling), £

Interest rate

0.5% (October 2017)

Fleet Maturity Index (scaling)


Political key info

Centre-right government


2.3% (March 2017)

Chapter 2 : Automotive market, segments & sales

Total Car park

30.5 million cars (36.7million vehicles), March 2016 (source: Vehicle Licensing Agency)

New vehicle registrations (Cars, LCV, Trucks)

2.69m cars, 371,830 LCVs, 8,001 (3.5-6t) in 2016 (source: Society of Motor Manufacturers and Traders)

Top 5 brands (total market)

Ford, Vauxhall, Volkswagen, BMW, Audi (source: SMMT)

Model preference top 5 (total market)
  1. Ford Fiesta
  2. Vauxhall Corsa
  3. Ford Focus
  4. VW Golf
  5. Nissan Qashqai

(Source: SMMT)

Dealer network (including fleet dealer network)

4,900 franchised dealers (source: National Franchised Dealers Association) 

Chapter 3: Company car market

Total Fleet Park (company cars)/Fleet penetration in total fleet sales

51.3% market share, 1,380,750 new cars (2016) (source: SMMT)

Evolution fleet sales (last 5 years)

2011 – 52.5% market share, 1,019,126 sales (source: SMMT)

Top 5 fleet brands (fleet market)
  1.  Ford
  2. Vauxhall
  3. BMW
  4. Volkswagen
  5. Mercedes-Benz

(source: SMMT)

Fleet Model preference top 5 (fleet market)
  1. Vauxhall Astra
  2. Ford Fiesta
  3. Vauxhall Corsa
  4. VW Golf
  5. Ford Focus

(source: SMMT)

Chapter 4: Taxation & legislation

4.1. Car Taxation 

Annual Vehicle Excise Duty, based on CO2 emissions, for cars first registered after 1st April 2017.

Emissions (g/km of CO2) First year rate Standard rate
0 £0 £0
1-50 £10 £140 (£130 for vehicles using an alternative fuel source: hybrids, plug-ins, bioethanol and LPG)
51-75 £25 id.
76-90 £100 id.
91-100 £120 id.
101-110 £140 id.
111-130 £160 id.
131-150 £200 id.
151-170 £500 id.
171-190 £800 id.
191-225 £1,200 id.
226-255 £1,700 id.
Over 255 £2,000 id.
All cars above £40,000 pay £310 annual supplement for five years starting in year two

4.2. Income Tax - Taxable Persons

Band Taxable Income Tax Rate
Personal allowance Up to £11,500 0%
Basic rate £11,501 to £45,000 20%
Higher rate £45,001 to £150,000 40%
Additional rate Over £150,000 45%

4.3. Company Car

To be completed

4.4. Income Taxes - Drivers' Personal Taxation

Benefit in kind tax is based on a percentage of the car’s official list price, determined by its emissions of carbon dioxide.

4.5. Electric Vehicles

Electric vehicles are zero rated for VED. For company car tax, electric vehicles with emissions of 0-50g/km are taxed at 7% of their list price in 2017-18 and 9% in 2018-19. 

4.6. Future Developments

New benefit in kind tax bands for vehicles with zero emissions will come into force from 2020, based on their range with zero emissions.

4.7. Legal Background (import taxes)

Awaiting the outcome of post-Brexit trade agreemeents.

Chapter 5: Car policies

  • Company car entitlement
  • Which sectors provide most fleet cars? 

Business services; Insurance/Accountancy/Banking; Architecture/construction [source: Sewells Research & Insight].

  • Which job functions often include a company car

Sales representative, service engineer, high and senior management. 

  • Which reference car(s) is given to: 
    • Entry/junior sales level: Ford Fiesta
    • Senior sales / management level: BMW 3 Series
    • Executive level Mercedes-Benz E-class

Chapter 6: Funding methods

The total business fleet leasing (operating lease and finance lease) market for cars and vans has grown to 1.35 million vehicles, of which 979,000 are cars and 371,000 are lcvs. [source: BVRLA]

Lessors are heavily dominated by banks and motor manufacturers.

6.1 Outright purchase

  • Outright purchase offers maximum flexibility in holding period of a vehicle
  • The residual value risk is carried by the fleet
  • Outright purchase is VAT inefficient, but can have capital allowance benefits depending on a car’s emissions

Is the decision to own vehicles a legacy of old business practice or a deliberate policy to retain maximum flexibility?  
What price does a business attach to flexibility? How certain is it of trading conditions and future business needs? How confident is it in the condition of its end-of-life vehicles? It’s the answers to these real life scenarios that make the outright purchase of vehicles an attractive solution for many businesses.

VAT-exempt organisations and those that pay zero or little corporation tax can also find that using their own funds to acquire vehicles makes business sense.

The question for fleet decision makers is whether outright purchasing is a legacy of ‘the way we’ve always done things’, or a funding arrangement that best suits business needs.

On the plus side, by taking immediate ownership of a vehicle, a fleet has complete freedom over how long to keep it and how many miles it can cover. When the recession struck, outright purchase fleets were at liberty to sell unwanted vehicles immediately, without any early termination penalties. Equally, they had the option to keep vehicles for longer to avoid replacement costs without incurring excess mileage charges. They carried the full depreciation risk of their strategic decisions, but the impact was an actual cost rather than a ‘penalty’ cost imposed by a leasing contract.

While the time to dispose of a vehicle is entirely at the discretion of an outright purchase fleet, this also brings a heavy responsibility to manage the sales process. With all the depreciation risk carried by the business, outright purchase fleets need in-house expertise or access to external specialists to maximise residual values.

They will, however, have the comfort of escaping the end-of-life ‘fair wear and tear’ battle with leasing suppliers. Over 70% of complaints to the British Vehicle Rental and Leasing Association relate to end of contract, de-hire charges, which averaged £439 per car in excess mileage and £274 in wear and tear damage in 2014. The issue is even more acute for van fleets due to the dents, dings and damage suffered by commercial vehicles as part of a hard working life. Avoiding exposure to such charges is one of the reasons why Anglian Home Improvements chooses to outright purchase its 800 light commercial vehicles while leasing its 600 cars.

Outright purchase fleets are also free to add livery to vehicles or fit racking to vans without concern about how this might damage residual values in the eyes of a leasing company.

But as the owner of vehicles, most fleets will also bear responsibility for service and maintenance, an area that requires close management to keep costs under control, although it is possible to outsource this area of fleet management to expert third-party suppliers and take advantage of their purchasing power and administration expertise. 

The elephant in the room, so to speak, of outright purchase in the UK is its unfavourable VAT treatment. Unlike leasing companies, end user fleets cannot reclaim VAT on the acquisition of company cars (unless they can prove there will be no private use of the vehicle). This has a major impact on wholelife costs for all but a few organisations such as insurers, banks and charities that are VAT exempt or have limited opportunity to reclaim VAT.
One tax break that can work in an outright purchase fleet’s favour are capital allowances, although the benefits are restricted to ultra low emission cars. Businesses can write off 100% of the cost of these cars against profits before tax in the first year.

One further consideration is that purchased vehicles are recorded on company balance sheets, which can affect a company’s gearing (the ratio of its borrowed funds to its equity. A high gearing ratio represents a high proportion of debt to equity, which may concern lenders who fear their loans are at risk of not being repaid). However, in the current climate banks scrutinise corporate accounts with a fine toothcomb prior to lending, identifying liabilities whether they are on or off balance sheet.

Finally, the financial crisis has diluted one of the traditional arguments in favour of outright purchase – that cash rich companies can use their own funds to buy vehicles rather than pay interest rates on a lease or loan. With interest rates at a record long-term low, borrowing costs have never been cheaper, and investing capital in depreciating assets becomes more difficult to justify as a business strategy.


Outright Purchase refers to the full up-front purchase of vehicles, providing a flexible solution that uses either the client’s internal funds or alternative credit lines. [Source: Inchcape Fleet Solutions]


  • Flexibility to buy, keep or sell vehicles according to business need.
  • No mileage restrictions and no end of contract wear and tear charges.


  • Ties up business capital in depreciating assets
  • Leaves residual value risk with fleet
  • No VAT recovery on company cars.
  • Economic & legal ownership – with the fleet.

6.2 Renting (Finance lease)

  • Finance leases offer no residual value protection to fleets
  • It’s an efficient finance mechanism from a VAT and corporation tax perspective
  • Finance leasing often requires significant in-house fleet expertise
  • Vehicles are recorded on fleet balance sheets

Finance leases combine the tax advantages of full service leasing (contract hire) with the opportunity to take advantage of any upside in residual values.

Finance leases are one of the more popular and flexible forms of funding company vehicles. In broadbrush terms they offer the tax advantages of contract hire with the risk and reward benefits of outright purchase, and this can be a winning combination for companies with an appetite for risk and dedicated in-house fleet resource. 

There are two types of finance lease. The first and rarer form sees fleets pay off the entire cost of a vehicle via monthly rentals over the term of a lease. The second and far more common form involves fleets paying fixed monthly rentals plus a final payment (generally referred to as a balloon payment) based on the forecast resale value of the vehicle. In this way, the fleet is only paying for the anticipated depreciation of a vehicle.

At the end of the contract the leasing company sells the vehicle to a third party (never the fleet customer). If the proceeds exceed the balloon payment, the windfall is shared between leasing company and fleet. If, however, there is a shortfall, it is the fleet that is liable to make up the difference to the leasing company.

In this way, fleets can enjoy the upside of a buoyant used car and van market, but equally they are exposed to any downturns.

The flexibility of the arrangement lies in the balloon payment. A business that wants to lower its monthly repayment rentals can sign up to a higher balloon payment (an option not available to contract hire customers). This means a finance lease can represent a way to fund a new vehicle with both low upfront and ongoing costs. However, fleets will be responsible for making up any shortfall between the vehicle’s actual residual value and the balloon payment. 
Since the disposal price of the vehicle is used to pay off the end of lease ‘balloon’, there are no end-of-contract excess mileage charges or wear and tear bills. The condition and mileage of the vehicle will, however, influence its resale value.

The tax treatment of finance leasing is similar to full service leasing (contract hire), with the leasing firm able to recover VAT on the acquisition of the vehicle and the fleet able to reclaim 50% of the VAT on rentals for company cars and 100% on vans. Similarly, rentals can be offset against company profits before tax, at a rate of 100% for company cars that emit less than 130g/km of carbon dioxide, 85% if the emissions exceed this threshold, and 100% for vans.
One accountancy difference with contract hire, however, sees finance leased vehicles appear on a fleet’s balance sheet with outstanding rentals recorded as liabilities.

And while it is possible to combine a finance lease with external fleet management and service and maintenance packages, organisations that do finance lease tend to have significant internal fleet resource to manage the greater risk associated with this type of funding compared to contract hire.

Businesses that do finance lease generally either have a very large fleet or a reasonably sized car fleet and big commercial fleet, so they have a degree of sophistication in house to manage the fleet. They will also contract in support from external suppliers, for maintenance, tyres, and windscreens.

6.3 Full service leasing (operational leasing)

  • Full service leasing (contract hire in the UK) is a fixed cost, risk free funding mechanism
  • Beware end of contract charges for excess mileage and wear and tear
  • Don’t rely on contract hire rentals as a surrogate for wholelife costs

Of the myriad ways to finance a company car, it’s full service leasing (contract hire) that has the wind in its sails. It’s not simply its tax and cash flow efficiency that are championing its cause, but also its risk-free nature for clients. As a result, its practice and principles underpin a number of developing employee car ownership schemes as well as funding the majority of company cars.

Contract hire provides a way for fleets to pay for the usership of vehicles without the complications of ownership. Customers pay a fixed monthly rental over a pre-agreed time and mileage (traditionally three years and 60,000 miles), and at the end of the contract simply return the vehicle to the leasing company. It’s currently an off-balance sheet funding method (although that will soon change)), with low upfront costs, where the risk of depreciation is carried by the leasing company, as is the cost of service and maintenance in many instances.

In a further gain, fleets benefit from the purchasing power of their contract hire company for both the acquisition of new vehicles and the on-going costs of replacement tyres, glass and servicing. All fleets have to do is fuel, insure and drive. 

In brief, contract hire eliminates risk and outsources a degree of the management of vehicles and staff. It may not be the cheapest option, but it can still be the best option. Due to its all-encompassing nature, contract hire can mean businesses require less internal resource to manage their fleets.

The biggest win lies in the beneficial VAT treatment of contract hire. This permits leasing companies to recover VAT on the acquisition price of company cars, and VAT-registered businesses to reclaim 50% of the VAT charged on the finance element of the monthly rental, and 100% of the VAT on the service and maintenance element.

Even capital allowances work in contract hire’s favour, allowing businesses to set 100% of the cost of monthly rentals against their profits before tax for company cars that emit less than 130g/km of carbon dioxide, 85% if the emissions exceed this threshold, and 100% for vans.

But, and there’s always a but, there are potential pitfalls in committing to contract hire vehicles. For a start, the fixed nature of the contract is much less flexible than other funding mechanisms. If an employee leaves, fleets face the option of reallocating the vehicle to another driver or paying a sizeable early termination charge to return the vehicle.
Likewise, at the end of a lease, any mileage beyond the contracted distance incurs excess mileage charges to compensate for the additional depreciation. These mileage charges averaged £439 per car in 2014, according to a Fleet News FN50 survey.

And then there’s the negotiation over what constitutes fair wear and tear when a vehicles is defleeted. The British Vehicle Rental and Leasing Association publishes a wear and tear guide, but the charges remain contentious (they averaged £274 per car last year) and have led the Association of Car Fleet Operators to work with the BVRLA to bring greater clarity and consistency to the issue.

Perhaps the biggest issue, however, is the temptation of fleets to use contract hire rentals as a surrogate measure of wholelife costs, and give employees free choice of any company car based on a monthly budget, without considering insurance, fuel or national insurance costs.

None of this should detract, however, from the fact that for most VAT registered businesses, contract hire remains a highly cost effective way to fund vehicles with the huge bonus of being simple and easy to administer. 

6.4 Fleet Management

  • Definition
  • Pro’s and con’s
  • Economic & legal ownership
  • Business practices

6.5 Short term rental

  • Definition
  • Pro’s and con’s
  • Economic & legal ownership
  • Business practices

6.6 Other funding methods

  • Novated lease
  • Private lease

Chapter 7: Fuel

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Chapter 8 : TCO components

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Chapter 9: Safety, insurance and telematics

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Chapter 10: Environment

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Chapter 11: Mobility

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Chapter 12: Key trends to watch

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