While the extended freeze on fuel duty grabbed the headlines, this year’s Budget ushered in further increases to company car and BIK Fuel tax as well as another adjustment to the CO2 threshold for capital allowances on business vehicles from 2018. The trend for fleet tax incentives to be focused on sub-100 g/km vehicles continues.
Paul Hollick, managing director of TMC, comments:
“George Osborne delivered a fairly predictable package of measures, which was to be expected with the close proximity of Brexit referendum in June.
There was good news for fleet and travel managers. As well as receiving the welcome announcement about fuel duty, businesses can relax knowing they won’t have to cope with a new tax regime on travel and subsistence expenses following on from last year’s review of the system.
It’s also good to see more encouragement for cleaner business transport via new moves to open our roads to autonomous cars and trucks, firming planting the UK ahead of other EU Markets in this regard. This will continue to attract international mobility technology to our shores.
I was underwhelmed by the predictable movement on capital allowance thresholds. He could have really gone further on this topic to drive business vehicle drivers into ULEVs though, especially for those that lease.
I’m pleased that the government now clearly recognises the need to provide clarity on BIK rates four to five years ahead. However, managers will need to pay close attention to the impact of higher annual increases in the company car tax bands from 2019 onwards, on top of retaining the diesel BIK surcharge. It means that many drivers’ tax bills will increase by four times as much in 2019 than they will do next year. Make sure you and your drivers understand the implications of this change for their car choices – whether to go for petrol or diesel as well as aiming for low CO2 emissions.”
Freeze on fuel duty
For the 6th successive year, the government will freeze the main rate of fuel duty at 57.95 pence per litre for 2016-17. This marks the longest fuel duty freeze in over 40 years. The Budget document estimates that the average driver will save around £75 every year in duty compared to pre-2010 fuel duty escalator plans. 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 motor fuel than they did in 2011 when the freeze began.
TMC comment: “The decision on fuel duty is very welcome. Road fuel is strategically important to the UK economy and the Chancellor has done the smart thing by allowing everyone to make the most of the fall in the oil price.”
Capital allowances: business cars
The government will extend the 100% First Year Allowance (FYA) for businesses purchasing low emission cars for a further three years to April 2021. From April 2018 the carbon dioxide emission threshold below which cars are eligible for the FYA will be reduced from 75g/km to 50 g/km. From April 2018, the government will reduce the carbon dioxide emission threshold for the main rate of capital allowances for business cars from 130 g/km to 110 g/km. The government will review the case for the FYA and the appropriate business cars emission thresholds from 2021 at Budget 2019.
TMC comment: It is a shame that the Chancellor didn’t use the opportunity to make leased vehicles eligible for the first-year writing down allowance. That would have lowered rentals across the market place and given a further boost to the contribution to the economy from the automotive sector.
Travel and subsistence
After analysing responses to its 2015 consultation document aimed at modernising the tax rules for travel and subsistence, the government has decided not to change them. It concluded that, although complex in parts, the current rules are generally well understood and work effectively for the majority of employees.
Fuel duty – The main rate of fuel duty for petrol and diesel will remain frozen at 57.95 pence per litre in 2016-2017.
Fuel Benefit Charge (FBC) – From 6 April 2017, the FBC multiplier for both cars and vans will increase by RPI.
TMC comment: BIK Fuel is already uneconomic for many recipients and will become dramatically more expensive next year when CCT rates start rising at 2-3 percentage points per year. If you have fully-expensed drivers, now is the time to talk to TMC about withdrawing the benefit using our BIK Fuel Scheme.
Van Benefit Charge (VBC) – From 6 April 2017 the main VBC will increase by RPI. The government will extend VBC support for zero-emission vans so that from 6 April 2016 the charge will be 20% of the main rate in 2016-17 and 2017-18, and will then increase on a tapered basis to 5 April 2022. The government will review the impact of this incentive at Budget 2018 together with enhanced capital allowances for zero-emission vans.
Vehicle Excise Duty (VED) rates and bands – From 1 April 2016, VED rates for cars, vans, motorcycles and motorcycle trade licences will increase by RPI.
HGV VED and Road User Levy rates and bands – From 1 April 2016, HGV and Road User Levy rates, including all other rates linked to the basic goods rate, will be frozen.
Company Car Tax (CCT) review – At Budget 2013, the government committed to review the incentives for ultra-low emission vehicles in light of market developments at Budget 2016. From 2020-21, the government will continue to base Company Car Tax on the CO2 emissions of cars and will consult on reform of the bands for ultra-low emission vehicles (below 75 g/km) to refocus incentives on the cleanest cars.
Company Car Tax rates – As announced at the 2015 Spending Review and Autumn Statement, from April 2016 the 3 percentage point differential between diesel cars and petrol cars will be retained until April 2021.
TMC comment: Diesel’s position as the default choice of company vehicle fuel is also being challenged by improvements in petrol cars’ mpg, the need for anti-NOx additives under Euro 6 emissions standards and possible future tolls on diesels entering cities due to air quality restrictions.
Company Car Tax rates for 2019-20 – As announced at March Budget 2015, the appropriate percentage of list price subject to tax will increase by 3 percentage points for cars emitting more than 75 g/km to a maximum of 37%, in 2019-20. There will be a 3 percentage point differential between the 0-50 and 51-75 g/km bands, and between the 51-75 and 76-94 g/km bands.
TMC comment: Refer to the Impacts section, below, to see the effect on drivers’ tax bills of the move from a 1 percentage point increase in CCT rates each year to increases of 2 and 3 percentage points.
Budget 2016 announced a further freeze to fuel duty. According to the Budget report, the average small business with a van saves £12 each time they fill their tank compared to the fuel escalator plans in place before 2010. The government has also kept the rates of HGV VED and Road User Levy frozen in 2016-17.
Air quality and Ultra Low Emission Vehicles (ULEVs). To 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, the government will:
- extend the 100% First Year Allowance (FYA) for businesses purchasing low emission cars for a further 3 years to April 2021
- reduce the main rate threshold for capital allowances for business cars to 110 g/km of CO2 and the FYA threshold to 50 g/km of CO2 from April 2018, to reflect falling vehicle emissions
- 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
Connected and autonomous vehicles – The government wants to establish the UK as a global centre for excellence in connected and autonomous vehicles. The government will:
- conduct trials of driverless cars on the strategic road network by 2017
- consult this summer on sweeping away regulatory barriers within this Parliament to enable autonomous vehicles on England’s major roads
- establish a £15 million ‘connected corridor’ from London to Dover to enable vehicles to communicate wirelessly with infrastructure and potentially other vehicles
- carry out trials of truck platooning on the strategic road network
- start trials of comparative fuel price signs on the M5 between Bristol and Exeter by spring 2016 to drive fuel price competition and help motorists save money
The government’s estimates of the additional tax raised each year by the changes to CCT are as follows. Figures are in £ million.
|Company Car Tax: retain the diesel supplement until 2021||270||270||270||265||270|
|Company car taxation: 3ppt increase in 2019-20||0||0||0||315||320|
|Company Car Tax: continuing to increase by 2ppt in 2017-18 and 2018-19||0||210||425||445||455|
TMC comment: Company car drivers will see their tax bills increase by four times as much in 2019 and 2020 than will be the case in 2017. Those who do not have the opportunity to move to lower-CO2 cars (ideally less than 100 g/km) in good time will be hit hardest.