Chancellor George Osborne’s 2016 Budget , which he repeatedly said put ‘the next generation first’, contained news of a freeze in fuel duty for the sixth year in a row, further details of investment in autonomous driving and the roads infrastructure, and confirmation of increases in company car tax for the next three years.
Despite having initially pencilled in an inflation linked rise, the Chancellor said that fuel duty would again be frozen, a move that was broadly welcomed across the fleet industry.
The move means that the main rate of fuel duty will remain at 57.95 pence per litre for 2016-17.This equated to an annual saving of £75 per year for the average motorist and £250 a year for a small business with a van. It was, said the Chancellor, a tax boost to keep Britain on the move.
Pump prices are now 18 pence per litre lower than they would have been if the government had maintained pre-2010 fuel duty escalator plans, and the typical motorist now spends £450 a year less on fuel than they did in 2011 when the freeze began.
Due to Government action on fuel duty that began in 2011, by the end of 2016-17 fuel duty will have been frozen for six years, the longest freeze since the mid-1990s.
BVRLA comment: “We welcome the ongoing freeze, which we believe will provide valuable financial consistency for UK businesses, particularly SMEs.”
Salary sacrifice under review
Salary sacrifice arrangements enable employees to give up salary in return for benefits-in-kind that are often subject to more favourable tax treatment than salary.
The Government wants to encourage employers to offer certain benefits but is concerned about the growth of salary sacrifice schemes: clearance requests for salary sacrifice arrangements from employers to HMRC have increased by over 30% since 2010.
The Government is therefore considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes.
However, the Government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements. No mention was made of salary sacrifice for cars.
BVRLA comment: “The Government says it intends to maintain the attractiveness of salary sacrifice schemes, but only mentions childcare, cycle purchase and pension schemes. We will have to wait for further announcements about cars provided under salary sacrifice schemes – but any changes would impact on the estimated £4,500 that HMRC receives in tax revenue per year from each salary sacrifice car. As well as being tax-positive for the Treasury, the evidence from our members demonstrates that the majority of recipients of salary sacrifice car schemes are those paying basic rate of tax (i.e. those employees paid less than £31,785). Cancelling or limiting salary sacrifice arrangements for cars as part of an employee package will therefore hit the lowest paid, as well as reducing their opportunity to drive a brand new car rather than an older vehicle, which is unlikely to conform to the same safety and emissions standards. We encourage the Government to recognise the value of salary sacrifice schemes as a net contributor of tax, as well their benefits in driving important behavioural changes in vehicle emissions and safety standards.”
Enhanced capital allowances and first year allowances (FYA)
The Budget also announced measures it said would support transition in the UK to cleaner zero and ultra-low emission vehicles, which will help improve air quality in the UK’s towns and cities and protect the environment for the next generation.
This included extending the 100% First Year Allowance (FYA) for businesses purchasing low emission cars for a further three years to April, 2021.
However, the main rate threshold for capital allowances for business cars will be reduced from 130g/km to 110 g/km of CO2 and the FYA threshold from 75g/km to 50g/km of CO2 from April 2018, to reflect falling vehicle emissions.
The Government will review the case for the FYA and the appropriate business cars emission thresholds from 2021 at Budget 2019.
BVRLA comment: “It’s pleasing to see the Chancellor extend 100% first year allowances for businesses purchasing ultra-low emission cars for a further three years until 2021, though yet again he has ignored our calls to make this benefit available for companies that lease their cars. This unfairly discriminates against SMEs who rely on lease arrangements to access new low-emission cars, and instead favours cash-rich businesses who can afford to purchase cars outright. It’s unsurprising that the Chancellor wants to reduce the main rate threshold for capital allowances for business cars from 130g/km CO2 to 110g/km in 2018, and we welcome the advance notice he has provided.”
The Budget said the Government is making the biggest investment in transport infrastructure in generations and is increasing capital investment in the transport network by 50% over this Parliament compared to the last, investing £61 billion.
The first Roads Investment Strategy is the biggest programme of investment in England’s strategic road network since the 1970s, and this Budget launched the second Roads Investment Strategy, which will determine the investment plans for the period from 2020-21 to 2024-25.
Budget 2016 also announced the allocation of the £50 million Pothole Action Fund for England in 2016-17, enabling local authorities to fill nearly a million potholes. The Government is also to provide a further £130 million to repair roads and bridges damaged by Storms Desmond and Eva.
BVRLA comment: “We support the Government’s ongoing support of road improvement, and look forward to receiving details of the second Roads Investment Strategy.”
The Government announced plans in the Budget to establish the UK as a global centre for excellence in connected and autonomous vehicles.
These included conducting trials of driverless cars on the strategic road network by 2017; and consulting this summer on how to sweep away regulatory barriers within this Parliament to enable autonomous vehicles on England’s major roads.
There was also a commitment to establish a £15 million ‘connected corridor’ from London to Dover to enable vehicles to communicate wirelessly with infrastructure and potentially other vehicles; and to carry out trials of truck ‘platooning’ on the strategic road network
This Spring, trials of comparative fuel price signs on the M5 between Bristol and Exeter would commence to drive fuel price competition and help motorists save money.
BVRLA comment: We welcome the Government’s commitment to launching and supporting the developing technologies in connected and autonomous vehicles. However, we still believe that further steps are required, such as pushing for a common set of data standards to provide consistency across the emerging market. We look forward to discussing with Government how the industry can support and inform such changes to generate a vibrant sector in this emerging market.
Company Car Tax BIK Rates 2016-2020
As signposted previously by the Chancellor, company car tax is set to go up by 2% for each of the next three years for all cars emitting more than 75g/km of carbon dioxide, up to a maximum of 37%. And in 2019-20 it will go up by a further 3%.The 3% diesel surcharge has been reinstated until April 2021.
The Chancellor also said that he would continue to base company car tax on CO2 emissions of cars, and consult on reforming the lower CO2 bands for ultra-low emission vehicles to refocus incentives on the cleanest cars beyond 2020-21.
Company drivers must therefore think very carefully about their next choice of vehicle, as those with the lowest carbon emissions will attract the lowest tax charges and they face a combined rise of 9% in the next four years.
BVRLA comment: “These additional tax burdens (the 2% increase in Company Car Tax and the deferral of the 3% surcharge for diesel vehicles) on company car drivers suggests the Government sees company car drivers as a cash cow, which is unacceptable. Based on the Treasury’s figures, we calculate these measures will cost the average company car driver an additional £626.94 in 2017-18, and £882.26 in 2018-19, on top of their existing tax burden. At a time when the number of company car drivers is diminishing every year, the BVRLA has major concerns as to the effect of these decisions on the long-term tax contributions.”
Vehicle Excise Duty
In last July’s Emergency Budget, the Chancellor announced details of a new VED system from April 2017 which will be used for a roads fund by the end of the decade, a move which was confirmed in this Budget.
While there will be an inflation-linked increase to VED for existing cars until April next year, for all new cars the duty in the first year thereafter will be set according to emissions, like today, but updated for new technology. At that point, there will be three duty bands – zero emission, standard and premium.
For standard cars – which covers 95% of all cars sold in the UK – the charge from 2017 will be a flat rate £140 a year. This is less than the average £166 that motorists pay today, but the new system is expected to only raise the same amount of revenue as today.
BVRLA comment: “While a reduction in VED would have been welcome, an inflationary rise was to be expected. The Chancellor’s freezing of VED on HGVs is to be welcomed, and will provide a shot in the arm for operators of large commercial vehicles.”
Corporation Tax will be reduced by 1% per annum from 2017, until it reaches 17% in 2020. In addition, Small Business Rate Relief will be doubled, the lower threshold increased to £12,000 and the upper threshold to £15,000.
BVRLA comment: “The Chancellor’s announcement that corporation tax will be cut further beyond the 20% he reduced it to in the previous Government is good news for UK business, including those working in the fleet sector. The steps taken to increase Small Business Rate relief will also benefit SMEs at a time when the UK cannot take its economic position for granted.”
Car and van fuel benefit charge 2016-17
From April, the Fuel Benefit Charge goes up to £22,200 for cars and £598 for vans, in line with the Retail Prices Index (RPI) for both classes of vehicle. The van benefit charge – that paid for employees with private use of a vehicle – rises by £20 to £3,170, again in line with the RPI.