A new report from economic forecasters Oxford Economics has found that, from April, the rental sector's overall first-year Vehicle Excise Duty (VED) bill will rise by 400% - from £11m in 2016 to £55m in 2017, with the inability to claim back over-paid tax responsible for £14m of this.
The report, commissioned by the British Vehicle Rental and Leasing Association (BVRLA), also showed that 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.
Despite this, rental firm Meridian Vehicle Solutions believes economic uncertainties will drive growth in short- and medium-term rental this year.
Launched in November 2015, Meridian works with a number of the UK's top 50 leasing and fleet management companies and plans to buy 500 cars this year. The firm aims to see this figure rise to between 600-700 vehicles by 2018 and up to 1,000 by 2019. Cars are currently kept on fleet for six months and, despite the VED changes, managing director Phil Jerome doesn't see this altering. The biggest challenge, he admits, is around vehicles with a list price of more than £40,000, which will now also incur more tax.
"We currently only have a small number of cars in the £40,000-and-above bracket and, in terms of our service offering, we will always want to de-fleet them at six months," Jerome told BusinessCar. "However, if some private buyers shun these cars on the used market - or expect to pay less - because they are liable for the £310 surcharge under the new RFL [road fund licence] rules, then we may have to consider dropping them altogether. This is not a big part of our fleet, but having to make that change would be a shame."