2017 Spring Budget Summary
The Chancellor, Philip Hammond, has delivered his first, and last, Spring Budget against a backdrop of what he says is an economy that has “confounded commentators” by delivering “robust growth”. One of the Budget themes was fairness, as evidenced by the increase to the National Insurance Contributions paid by the self-employed, and the proposed reduction in the dividend allowance aimed at entrepreneurs, but what are the key tax and spending announcements that business car drivers, fleet operators and the wider automotive industry should take notice of?
Potential changes affecting diesel cars
Despite the recent calls for diesels to be punitively taxed in order to improve the UK’s air quality, the Chancellor resisted the temptation to increase the diesel supplement, withdraw capital allowances or raise the Vehicle Excise Duty applied to diesels. Although no diesel scrappage scheme was announced, as the government seeks to develop a plan to improve air quality it has put the country on notice that a new diesel tax regime could be introduced as early as next year. A consultation to explore the taxation of diesel vehicles will be carried out ahead of the announcement of potential tax changes during the 2017 Autumn Budget.
Legislation arising from recent consultations
As expected, the government confirmed the introduction of the changes proposed by the consultations carried out in 2016, as set out below.
As announced during the 2016 Autumn Statement, the proposed legislation regarding salary sacrifice will come in to force from 6 April 2017, to remove the income tax and employer National Insurance Contributions (NIC) advantages when benefits are provided via salary sacrifice or other optional remuneration arrangements, such as a cash alternative to the company car.
Following extensive lobbying from the automotive sector, cars with CO₂ emissions up to, and including, 75 g/km will be exempted from the new legislation and grandfathering will be applied for cars so that any salary sacrifice arrangements in place prior to April 2017 will not be subject to the changes until April 2021.
Effectively, this means that for employees joining a salary sacrifice scheme from 6 April 2017, the current tax and employer NIC benefits will be restricted to cars with CO₂ emissions up to, and including, 75 g/km.
Company car tax for ULEVs from April 2020
To incentivise car manufacturers to further improve battery technology, from 6 April 2020 the company car tax charged on ULEVs will be calculated by reference to a car’s CO₂ emissions and zero emission range. Accordingly, for ULEVs the BiK percentage of 16% applied in 2019/20 will be reduced in 2020/21 as follows:
- 0 g/km — 2%;
- 1–50 g/km — 2% to 14% — depending on zero emission range.
New bands will be introduced for cars with CO₂ emissions exceeding 50 g/km; starting at 15% for cars with emissions up to 55 g/km, the BiK percentage will increase by 1% for each 5 g/km band, up to the maximum of 37% which will apply to non-diesel powered cars with emissions of 160 g/km or greater.
The 3% diesel supplement will apply until at least April 2021 for cars powered solely by diesel; therefore in 2020/21 the 37% maximum will apply to all diesel cars with emissions of 145 g/km or greater.
In response to last year’s discussion paper regarding IFRS 16 the government has confirmed that the proposed lease accounting changes will not change the basis of lease taxation, which means that tax relief will still be calculated according to the rentals paid even though leases will be capitalised.
The precise details will be published following a consultation to be carried out during 2017.
The Chancellor confirmed that fuel duty will be frozen until 2018, as announced in the Autumn Statement, saving the average car driver £130 and the average van driver £350 per year, at a total cost to the Exchequer of £850 million in 2017/18.
Vehicle Excise Duty (VED)
The new VED rates for cars registered on or after 1 April 2017 will be introduced as planned.
From April 2017, the VED rates for cars registered before 1 April 2017 and vans which are not Euro 4 or Euro 5 compliant will rise in line with inflation in 2017/18, but VED rates for HGVs will be frozen.
What did we know already?
As there were relatively few tax announcements in the Spring Budget we thought it worthwhile to recap previously announced measures that will affect fleets this year.
Company car tax (BiK)
From 6 April 2017:
the BiK percentage for all CO₂ emission bands will increase by 2%:
- the lowest BiK percentage, which will apply to cars will be 9%; and
- the maximum 37% will be applied to diesel cars with emissions of 175 g/km or greater, and other cars with emissions of 190 g/km or greater.
Van benefit charge
From 6 April 2017:
- van benefit charge — £3,230 (from £3,170), with electric vans taxed at 20% of full charge;
Fuel benefit charge
The multipliers will rise as follows with effect from 6 April 2017:
- van benefit fuel multiplier — £610 (from £598); and
- car fuel benefit multiplier — £22,600 (from £22,200).
100% first year allowances will be made available until 31 March 2019 to businesses that invest in electric vehicle charge-points.
The CO₂ threshold for the 100% first year allowance for businesses that purchase low emission cars will fall from 75 g/km to just 50 g/km on 1 April 2018, when the emissions threshold for the main rate of capital allowances will also fall from 130 g/km to 110 g/km.
As the lease rental restriction is linked to the capital allowances main rate threshold, from April 2018 businesses which lease new cars with emissions exceeding 110 g/km will suffer a 15% reduction in the tax relief available on their rentals.
Insurance Premium Tax (‘IPT’)
IPT will increase again from 10% to 12% from 1 June 2017.
In order to improve UK productivity, which persistently lags behind that of our competitors, the Chancellor has set up a new £23 billion National Productivity Investment Fund (‘NPIF’) to be spent over the next five years on strategic innovation and infrastructure projects.
In addition to existing funding provided via the Roads Investment Strategies, by 2020/21 the NPIF will invest £1.1 billion to deliver local road and public transport upgrades, and the Chancellor confirmed that £490 million will have been made available for local road improvements by autumn 2017.
A further £220 million will be invested in the short term to tackle traffic pinch-points on strategic national roads.
During the last Autumn Statement the Chancellor announced that over the next 4 years the NPIF will invest a further £80 million for ULEV charging infrastructure, £150 million for low emission buses and taxis, and £100 million for connected and autonomous vehicle testing infrastructure.
In this the last Spring Budget Mr Hammond pledged to keep the UK at the forefront of the technological developments required to transform the UK economy. Supported via the Industrial Strategy Challenge Fund an initial investment of £270 million this year will include work on the development, design and manufacture of the batteries that will power the next generation of electric vehicles, thereby helping to tackle air pollution.