Fuel duty freeze for fleets and investment in driverless cars
Chancellor George Osborne’s 2016 Budget that ‘put stability first’ set out further spending cuts, extra investment to turn all state schools in England into academies, and offered incentives for small businesses.
Despite a slowdown in the world economy, the Chancellor has the benefit of an economy at home with record levels of employment and a growth rate predicted at 2.0% this year – the fastest rate of growth of any advanced economy in the world, he said.
And, in his eighth Budget to date, he was able to unveil a string of tax-cutting measures with many, such as reducing business rates, aimed at the small business sector.
For fleet operators, there was 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, confirmation of increases in company car tax for the next three years and of the new system of Vehicle Excise Duty which takes effect from April 2017.
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 main rate of fuel duty will remain at 57.95 pence per litre for 2016-17.This equates 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.
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.
The BVRLA comments: “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. 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.”
Enhanced capital allowances and first year allowances (FYA)
The Budget also announced measures to support the 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 car emission thresholds from 2021 at Budget 2019.
The Budget indicated that the Government is making the biggest investment in transport infrastructure in generations. It 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.
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.
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.
Following the announcement of the continuation of the 3% diesel surcharge, it appears that diesel-hybrid vehicles will continue to be exempt from the 3% diesel supplement beyond 2016 and will continue to be taxed as petrol cars under company car taxation rules.
Vehicle Excise Duty
Changes to the VED system from April next year are as previously announced; duty in the first year set according to emissions, like today, and from the second year three 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.
VED will rise in line with inflation for the year 2016-17.
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.