Spring Budget 2016: What to expect

There should be no surprises for fleets in the UK Budget in a few weeks’ time as everything is so well signposted beforehand – but you never know! The Chancellor could still spring a surprise or two that few people will see coming.

For example, most pundits were caught wrong-footed by the news in November’s Autumn Statement that the Government was set to do a U-turn over the abolition of the 3% Benefit-in-Kind tax surcharge on diesel cars originally planned for this April.

The removal of the surcharge had been well flagged in advance, and had largely been welcomed by fleet operators as diesel is the dominant fuel in the UK fleet market, but now this move has been delayed for a further five years until 2021.

That means that those company car drivers who were expecting a tax boost in relation to the diesel cars they are currently driving will have had their hopes dashed for the foreseeable future.

Extra windfall for Treasury from diesel U-turn

The diesel U-turn is expected to raise an additional £1.36bn over the next five years for the Treasury, £280m of which will come in the next financial year, 2016/2017.

And it leaves company car drivers facing higher-than-expected tax bills from next month, as diesel cars will not be brought into line with their petrol counterparts as expected.

Many drivers may well have chosen diesel vehicles this year with the expectation that the surcharge would be lifted in April.

As signposted previously by the Chancellor, company car tax went up by 2% in the current tax year 2015/16, and it is set to go up by the same amount 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%.

All of which means that company drivers need to 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.

Benefit-in-Kind tax scales for the coming years can be found here

 

Vehicle Excise Duty changes

Another area that the Budget details would typically cover is Vehicle Excise Duty.

But, in another well sign-posed move, fleet operators can already expect a new Vehicle Excise Duty (VED) system from April 2017 that will be used to fund new roads, following the Government’s announcement at the emergency Budget last July.

VED currently raises around £6bn for the Exchequer but, in the emergency Budget, the Chancellor flagged up a new system of VED that will be used fix the country’s road network.

The new VED system will be used to create a roads fund by the end of the decade.

While there will be no change to VED for existing cars, for all new cars from next April the duty in the first year will be set according to emissions, like today, but updated for new technology. Thereafter, 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 raise the same amount of revenue as today.

In the emergency Budget, the Chancellor announced that from the end of the decade “every single penny raised in Vehicle Excise Duty in England will go into that fund to pay for the sustained investment our roads so badly need.”

VED bands and rates for cars first registered on or after April 1 2017

CO2 emissions (g/km) First year rate Standard rate *
0 £0 £0
1-50 £10 £140
51-75 £25 £140
76-90 £100 £140
91-100 £120 £140
101-110 £140 £140
110 -130 £160 £140
131-150 £200 £140
151-170 £500 £140
171-190 £800 £140
191-225 £1200 £140
226-255 £1700 £140
Over 255 £2000 £140

*Cars with a list price above £40,000 will attract a supplement of £310 on their standard rate for the first five years in which a standard rate is paid.

Growth in Ultra Low Emission Vehicle sales

The UK Budget 2016 might also be expected to contain details of the Government’s support for Ultra Low Emission Vehicles (ULEV) in the Budget as it a key plank of the Government’s environmental policy.

The Government anticipates that 5% of new car registrations, around 100,000 units, will be ultra-low emission by 2020, and it has announced support in the shape of plug-in grants which will reach an all time total value of £600m in the next five years.

However, it has also revealed, ahead of the Budget day, that there will be two plug-in grant rates from the beginning of this month and a cut in the previous £5,000 plug-in grant.

Vehicles with a zero emission range of more than 70 miles – category one – will now receive a grant of £4,500, while vehicles with a shorter zero emission range — category two and three, such as plug-in hybrid vehicles with a petrol or diesel engine — will receive £2,500.

The new banding system is as follows:

  • Category 1: CO2 emissions of less than 50g/km and a zero emission range of at least 70 miles.
  • Category 2: CO2 emissions of less than 50g/km and a zero emission range between 10 and 69 miles.
  • Category 3: CO2 emissions of 50-75g/km and a zero emission range of at least 20 miles.

A price cap will also be introduced from this month. Category two and three models with a list price of over £60,000 will not be eligible for the grant, but all category one vehicles with a zero emission range of more than 70 miles will be eligible for the full £4,500.

Fuel benefit charge confirmed

Another area the Budget has traditionally tackled is that of fuel benefit charges. But, in the Autumn Statement, the Chancellor has already confirmed the van, van fuel and car fuel benefit charges for the forthcoming tax year.

The van benefit charge – that is paid when an employee has private use of a vehicle – rises by £20 to £3,170, while the figure for van fuel benefit rises to £598 from April .

And for company car drivers that have private fuel paid, the scale charge goes up by £100 to £22,200.

Fuel duty likely to be frozen again?

At the Autumn Statement, the Chancellor also announced that fuel duty would remain frozen, and it seems unlikely that the Government would contemplate a rise in duty in this Spring Budget when the wholesale price of oil has fallen so dramatically on world markets.

However, some pundits have suggested that the Chancellor may see this as a revenue raising opportunity, given the fact that Government finances are tight elsewhere. If so, it is a measure that would be exceedingly unpopular with motoring organisations and fleet operators across the country.

But, like everyone else, we will have to wait until March 16th to find out!

If you would like more information about information likely to be confirmed at the Spring Budget in a few weeks’ time, then please get in touch.