Chancellor announces a Budget for a ‘strong, stable Brexit platform’

Chancellor Philip Hammond announced a steady-as-she-goes Budget aimed at creating ‘a strong stable platform for Brexit’ in his first, and last, Spring Budget Statement.

The Budget will be switching to the Autumn in future, but this Spring’s Statement revealed better than expected tax revenues, higher growth than forecast and an economy that had confounded commentators with its robust performance, said the Chancellor.

The Office for Budget Responsibility revealed that economic growth for this year was now expected to be 2.0% rather than the1.4%previously forecast, while employment was at record levels and unemployment at an 11-year low.

Although not explicitly stated, the Budget confirmed many of the measures that the Chancellor had already introduced at the Autumn Statement.

For fleets, these were among the most relevant:

New tax plans for diesels

One new measure that will be of concern for fleet operators who run primarily diesel vehicles will be the news that the Government is planning to explore changes in the way such vehicles are taxed.

Budget documents revealed that the Government is considering a new tax regime for diesel vehicles that could be introduced before the end of the year as it looks to introduce a new air quality plan.

The Budget report states that a detailed draft plan will be announced in the Spring concerning improving the UK’s air quality.

Allied to this, the report states that “the Government will continue to explore the appropriate tax treatment for diesel vehicles, and will engage with stakeholders ahead of making any tax changes at Autumn Budget 2017”.

Vehicle Excise duty set to rise

Pleas from the British Vehicle Rental and Leasing Association to defer or stagger planned changes to the VED system fell on deaf ears, as did its wish for owners to retain the ability to obtain a full refund of any tax outstanding when a car is sold in the first year.

From 1 April 2017, VED rates for cars, vans and motorcycles registered before April 2017 will increase by Retail Prices Index (RPI).

However, it is all cars registered after that date that will see the biggest changes due to the new system announced at the Autumn Statement and which takes effect in April.

Under the a new rules, there is a higher first year rate for most cars according to their CO2 emissions, including Ultra Low Emission Vehicles (ULEVs), many of which will be subject to VED for the first time, although cars that emit no CO2 will continue to be exempt from both rates.

The first year rate continues to increase as CO2 emissions rise, with the highest rate set at £2,000 compared to the current high of £1,120.

Thereafter, in subsequent years 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 April will be a flat rate £140 a year. This is less than the average £166 a year that motorists pay today, although the new rates have been designed to increase revenues.

VED bands and rates for cars first registered before the April 1 2017 deadline and after:

Emissions CO2 g/km First year rate pre April 17 (£) First year rate post April 17 (£) Total increase in first year (£) Pre April 17 annual rate (£) Post April 17 annual rate (£) Total increase/ decrease in first year (£)
0 0 0 0 0 0 0
1-50 0 10 10 0 140 140
51-75 0 25 25 0 140 140
76-90 0 100 100 0 140 140
91-100 0 120 120 0 140 140
101-110 0 140 140 20 140 120
111-120 0 160 160 30 140 110
121-130 0 160 160 110 140 30
131-140 130 200 70 130 140 10
141-150 145 200 55 145 140 -5
151-165 185 500 315 185 140 -45
166-170 300 500 200 210 140 -70
171-175 300 800 500 210 140 -70
176-185 355 800 445 230 140 -90
186-190 500 800 300 270 140 -130
191-200 500 1,200 700 270 140 -130
201-225 650 1,200 550 295 140 -155
226-255 885 1,700 815 500 140 -360
Over 255 1,120 2,000 880 515 140 -375

 

For cars with a list price greater than £40,000 when new, there will be an annual supplement of £310 in addition to the standard rate, for five years.

Many commentators have queried why ULEVs are now subject to VED, rather than being incentivised with a zero rate as before.

Fuel duty frozen

Although there was no direct reference to it in the Budget, the Chancellor had already announced at the Autumn Statement that fuel duty would remain frozen, putting the planned rise on hold for the seventh successive year and making the current fuel duty freeze is 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, and amounted to a tax cut worth £850m, the Chancellor said at the time.

In the Budget, the Chancellor announced that HGV VED and Road User Levy rates will be frozen from 1 April 2017.

A call for evidence on updating the existing HGV Road User Levy will be launched this spring, and the Government will work with industry to update the levy so that it rewards hauliers that plan their routes efficiently, to incentivise the efficient use of roads and improve air quality.

Roads spending and other investment

The Chancellor announced at the Autumn Statement an extra investment in the country’s transport infrastructure with an additional £1.1bn for work on the roads network in England.

And, at the Budget, he confirmed that a further £220m was designated to address ‘pinch points’ on major strategic roads, with £93m to be spent in the North and £23m in the Midlands. He also announced a £690m competition amongst local authorities to tackle urban congestion.

Changes to company car tax

Although not directly addressed at the Budget, changes already announced to the Benefit in Kind company car tax system from 2020 will prioritise electric vehicles.

The Autumn Statement reintroduced a BiK band for 0g/km vehicles which had been removed last April, and added a sliding scale for plug-in hybrid and range-extended electric models which emit 50g/km or less.

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. See table below.

For other vehicles, there will be a 1% increase per band, up to a maximum 37% rate.

 

2020-21 company car tax bands for ULEVs

CO2

(g/km)

Electric range

(miles)

BIK (%)

0 2
1-50 > 130 2
1-50 70-129 5
1-50 40-69 8
1-50 30-39 12
1-50 <30 14

 

Critics of the scheme say, however, that there is a considerable disincentive under current BIK rules to purchase ULEVs until 2020, as the current regime sees rates rise to as high as 16% for vehicles emitting 0-50g/km and 22% for vehicles of 76-94g/km in three years time – see table.

 

2017/18                                       2018/19                               2019/20

CO2 g/km BIK% CO2 g/km BIK% CO2 g/km BIK%
0-50 9 0-50 13 0-50 16
51-75 13 51-75 16 51-75 19
76-94 17 76-94 19 76-94 22

Major changes to salary sacrifice

Following the Autumn Statement in November, but with no direct reference in the Budget, the Government is bringing in a series of changes to salary sacrifice schemes from April 6th 2017 which will impact on all employers who provide such schemes for their employees.

With a few notable exceptions, including pensions, child care provisions, ULEVs emitting 75g/km of CO2 or less and cycle-to-work, the taxable value of a benefit under a salary sacrifice arrangement will now be the greater of the current value of the benefit or the cash forgone.

Going forward this will be the value employers will need to use for calculating income tax and class 1A NICs. Any contracts entered into before April 6 will be protected until a ‘change in arrangements’ has taken place.

For existing contracts, the Government has put in place ‘grandfathering’ arrangements so that, if a contract is in place before 6 April 2017, the new rules will not come into place until there is a change of arrangements or 6 April 2018, whichever is the earliest.

Arrangements for ULEVs, accommodation and school fees will be protected until April 2021.

Insurance Premium Tax to rise

The government said it would legislate to introduce anti-forestalling provisions and increase the standard rate of IPT to 12% from 1 June 2017, as announced at the Autumn Statement.