The Chancellor, Philip Hammond, announced changes to salary sacrifice schemes, new tax bands for electric vehicles, a freeze in fuel duty and extra spending on roads and electric vehicle infrastructure in his Autumn Statement.
1. ULEVs exempt under new salary sacrifice changes
The Chancellor announced major changes to salary sacrifice schemes, and said they led to some employees paying less tax than their colleagues, which was not fair. However, ultra low emission vehicles (ULEVs), pension savings, childcare vouchers and cycle to work schemes.
As a result of the Chancellor’s changes, those opting to take benefits through salary sacrifice would, from April, pay the same tax as if they had been provided through their cash income, a move set to raise an extra £85m in taxes during the 2017/18 tax year.
This would then increase to an extra £235m per year in the financial years 2018/19, 2019/20 and 2020/21 in terms of increased tax revenues.
There were exceptions to this new rule, however, and exempt from the changes were ultra low emission vehicles (ULEVs), pension savings, childcare vouchers and cycle to work schemes.
Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
The Government defines (ULEVs) as cars or vans with tailpipe CO2 emissions of 75 g/km or less. And the changes are likely to give a further boost to such low-emitting vehicles, although choice at the moment is still limited.
Existing schemes are protected for four years and there are growing numbers of vehicles with CO2 emissions of 75g/km, which are only going to increase over time.
The announcement may now mean a rush of new car orders through salary sacrifice car schemes between now and next April as drivers seek to take advantage of existing rules.
2. Changes to company car tax prioritise EVs
Changes to the Benefit in Kind company car tax system from 2020 will prioritise electric vehicles, according to measures announced in the Autumn Statement.
The Statement reintroduced a BiK band for 0g/km vehicles which had been removed last April, and adds a sliding scale for plug-in hybrid and range-extended electric models which emit 50g/km or less.
Replacing a single sub-50g/km band, it follows a consultation earlier this year which was aimed at providing an incentive for manufacturers to move beyond hybrid vehicles with limited electric mile range, which risk being driven in combustion engine mode most of the time.
From April 2020, fully-electric cars will be taxed at 2%. Vehicles emitting between 1g/km and 50g/km – plug-in hybrids and range-extenders – will vary, with BiK bands between 2% and 14% depending on how far they can travel on battery power.
There will be a 1% increase per band, up to a maximum 37% rate, for cars emitting 90g/km or more. This is expected to raise an additional £30m in the 2020/21 and 2021/22 financial years, according to the Autumn Statement’s supporting documents.
3. Fuel duty frozen for the seventh success year
The Chancellor also announced that fuel duty would remain frozen, as the price of oil had risen by 60% since January, putting the planned rise on hold for the seventh successive year and making the current fuel duty freeze the longest for 40 years.
In total, this initiative was expected to save the average car driver £150 a year and the average van driver £350 a year, amounting to a tax cut worth £850m next year, the Chancellor said.
RAC fuel spokesman Simon Williams said: “The Chancellor’s commitment to freeze fuel duty will be greeted with relief by motorists and businesses at a time when we know drivers are concerned that fuel prices will rise significantly over the next six months – which might be the case if oil-producing countries that are members of OPEC commit to an oil production cut when they meet this time next week.”
4. Roads spending and insurance premium tax up
The Chancellor also announced extra investment in the country’s transport infrastructure with an additional £1.1bn for work on the roads network in England, and a further £220m for pinch-points on major strategic roads.
He also revealed a £390m investment to “build on our competitive advantage in low emission vehicles and the development of connected autonomous vehicles”.
There was also a 100% first-year allowance (FYA) for expenditure incurred on electric charge-point equipment, as well as an additional £80m investment to install public charging infrastructure.
Insurance Premium Tax (IPT) is to rise from 10% to 12% from the start of June 2017, though the Government confirmed its intention to legislate next year to end the compensation culture around whiplash claims and help keep prices down.