Company car drivers impacted as the 3% diesel supplement is extended until 2021
In one of a number of U-turns in the Autumn Statement and Spending Review, the Government has changed its mind about abolishing the 3% Benefit-in-Kind tax surcharge on diesel cars next year and delayed it until 2021.
The 3% surcharge was set to disappear in April 2016, but Chancellor George Osborne said he had decided to postpone the move for a further five years “in light of the slower-than-expected introduction of more rigorous EU emissions testing”.
The U-turn therefore seems likely to have been influenced by the recent scandal involving Volkswagen emissions in which software was used to deliberately disguise pollution levels.
Up to 11m of its cars worldwide are likely to be affected by the issue, in which in-car software allowed a variety of VW models to emit less pollution during tests than they would while driving normally.
Recent events have changed the perception of diesel in the market place, and more rigorous emissions testing is currently being considered across the EU involving real-life conditions on open roads rather than under test centre or laboratory conditions. But the Chancellor clearly feels the timetable is too slow for his liking.
Extra windfall for Treasury
The U-turn is expected to raise an additional £1.36bn over the next five years for the Treasury, according to the Government’s policy costings document – £280m of which will be raised in the next financial year, 2016/2017.
However, its effect is to leave company car drivers facing higher-than-expected tax bills from next April, as the expectation was that diesel cars would be brought into line with their petrol counterparts as outlined in previous Budget Statements.
Its delayed removal is a blow for many company car drivers, and it could potentially impact on four out of five drivers. Many drivers may well have chosen diesel vehicles this year with the expectation that the supplement would be lifted next April.
The new move means that the scale charge for diesel cars will now be 3% higher from April, starting at 10% for cars emitting CO2 emissions of 1-50g/km.
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% BIK Rate
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Fuel benefit charge confirmed
The Chancellor also confirmed the van, van fuel and car fuel benefit charge for the 2016-17 tax year.
The van benefit charge – that paid for employees with private use of a vehicle – rises by £20 to £3,170, while the figure for van fuel benefit rises to £598 from April 2016.
For company car drivers that have private fuel paid, the figure goes up by £100 to £22,200, which means a 40% tax payer with private fuel will be hit to the tune of £8,880 per year.
Increased ULEV support
At the same time, the Government announced it is putting aside £600m to support the market and manufacturing of ultra-low emission vehicles with a target of 25% of European EVs being built in the UK.
This is part of the Government’s commitment to continue towards 100% zero emission vehicle sales by 2040. The investment is said to save 65 million tonnes of carbon, as well as helping with air quality issues.
Roads spending increased
The Chancellor also announced that the Department for Transport’s (DfT) operational budget will fall by 37%, but its capital spending will increase by 50% to £61 billion, as part of the Roads Investment Strategy, signalling the biggest investment in roads since the 1970s.
This will include resurfacing more than 80% of the strategic road network and delivering more than 1,300 miles of additional lanes.
Future roads investment will be underpinned by a new Roads Fund paid for directly from the revenues of Vehicle Excise Duty from 2020-21.
In addition, the Spending Review and Autumn Statement will provide £250 million over the next five years to tackle potholes, on top of nearly £5bn of funding for roads maintenance, a £300m increase compared to the previous Parliament.
Fuel duty frozen
The Chancellor also announced that fuel duty would remain frozen, an announcement that was seen by some campaigners as not going far enough.
Some campaigners said Mr Osborne should have been bolder and cut duty on all fuels, missing an opportunity to increase consumer spending, generate new jobs, boost GDP and, as a result, see more growth tax revenue.