2016 Budget Summary

What does the future hold for company cars?

George Osborne’s eighth Budget speech lasted 68 minutes, but he didn’t mention company cars once in a speech of 9,225 words.

So, based on the speech delivered at the dispatch box, we could assume that the 2016 Budget won’t affect company car tax. But we’d be wrong, because there are many references to company cars in the Red Book, which was published by The Treasury shortly after the Chancellor resumed his seat next to the Prime Minister.

Important announcements affecting company cars

Company car tax

Three years ago the government announced that the 2016 Budget would signify the culmination of a review of company car taxation, and some commentators had forecast that the taxation of company cars might be radically overhauled.

But the government has concluded that it will continue to base company car tax on CO₂ emissions for the foreseeable future, although it will consult on the reform of the taxation of ultra-low emission vehicles in order to refocus incentives on the cleanest vehicles. The date of this consultation was not announced, but as the government has previously committed to announce company car tax rates three years in advance we would expect the consultation to take place this year, so that the rates for 2020/21 could be announced in the Autumn Statement or the 2017 Budget at the latest.

Capital allowances – first year allowance (FYAs)

The 100% FYA for businesses that purchase the lowest emissions vehicles will be extended for a further 3 years until April 2021, but from April 2018 the cars that will qualify for FYAs must have CO₂ emissions not exceeding 50 g/km (reduced from the current threshold of 75 g/km).

Capital allowances – writing down allowances (WDAs)

From April 2018 the CO₂ emissions threshold below which cars are eligible for the main rate of capital allowances will be reduced from 130 g/km to 110 g/km. Accordingly, cars with emissions between 51 g/km and 110 g/km will be eligible for an 18% WDA, and cars with emissions exceeding 110 g/km will only be eligible for an 8% WDA.

As the lease rental restriction is linked to the capital allowances main rate threshold, we expect that businesses which lease new cars with emissions exceeding 110 g/km after April 2018 will suffer a 15% reduction in the tax relief available on their rentals.

Other important announcements for fleet operators

Fuel duty

Fuel duty has been frozen for the 6th successive year, which marks the longest fuel duty freeze for more than 40 years. With fuel duty remaining at 57.95 pence per litre since 2011 pump prices are now 18 pence per litre lower than they would have been had the fuel duty escalator been maintained and a typical motorist now spends £450 a year less on fuel than they did in 2011.

Salary sacrifice

As noted in the last two Budgets, with clearance requests increasing by more than 30% since 2010 the government remains concerned about the growth of salary sacrifice schemes. It is therefore considering limiting the range of benefits that attract income tax and NIC advantages when provided within a salary sacrifice arrangement, but has stated that salary sacrifice for pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from tax and NIC relief.

Salary sacrifice for cars has not been specifically mentioned and so it remains to be seen whether company cars might be excluded from salary sacrifice for cars going forward, although many within the automotive industry will no doubt argue that encouraging the take-up of ultra-low emission cars has wider benefits for air quality and the environment, both areas of concern for the government.

Insurance

Insurance premium tax, which is applied to all motor insurance policies, will increase from 9½% to 10% from 1 October 2016.

Vehicle Excise Duty (VED)

VED rates for cars, vans and motorcycles will increase in line with the RPI, but the rates for HGVs and Road User Levy Rates will be frozen.

Legislation will be enacted so that from 1 April 2017 cars that are more than 40 years old before the start of the year are automatically exempt from paying VED.

Roads

The Roads Investment Strategy represents the biggest programme of investment in England’s strategic road network for generations, with £61 billion due to be spent during this Parliament. The 2016 Budget earmarked the launch of the Second Roads Investment Strategy which will determine the government’s investment plans for the five years between 2020 and 2025.

And as part of the devolution revolution, the government has will upgrade the M62 as part of its proposals to create a Northern Powerhouse and halving the tolls on the Severn River crossings between England and Wales.

Making the UK a centre for excellence for autonomous vehicles

In order to achieve this ambitious objective, under the Highways England Innovation Strategy the government will launch a series of measures including trials of driverless cars and truck platooning on the strategic road network, the establishment of a connected corridor between London and Dover and a consultation on the removal of barriers that prevent the use of autonomous vehicles on England’s major roads.

The government will also award £38 million of grants across the UK, which should be matched by industry, for collaborative R&D into low emission vehicles.

What did we know already?

We conclude our summary with a worthwhile recap of previously announced measures that come in to force from April 2016.

Company car tax (BiK)

From 6 April 2016:

• the BiK percentage for all CO₂ emission bands will increase by 2%, subject to the maximum of 37%; and
• the 3% diesel surcharge will be retained.

Company van tax

For 2016/17 the van benefit charge will increase to £3,170 (from £3,150) for all vans emitting CO₂.

The phased introduction of the van benefit charge for zero emission vans was introduced in 2015, with all zero emission vans due to attract the full charge by 2020. However, the government has pledged to extend its support for zero emission vans and so the charge for these vans will remain 20% of the full charge in 2016/17 and 2017/18, increasing thereafter on a tapered basis until the full charge is applied from April 2022.

Employer provided free fuel

The car fuel benefit charge multiplier for 2016/17 will increase to £22,200 (from £22,100).

The van fuel benefit charge multiplier for 2016/17 will increase to £598 (from £594).

Income tax

From 6 April 2016 the personal allowance will increase to £11,000 and the level of earnings at which individuals pay higher rate tax (40%) will rise to £43,000, with the threshold leaping to £45,000 in 2017.

The Scottish Rate of Income Tax will be introduced, although the Scottish government has announced that taxpayers residing in Scotland will pay the same rate of tax as other residents of the UK in 2016/17.

National Living Wage

Employees aged 25 or over will be entitled to the National Living Wage, which has been set at £7.20 for the year commencing 1 April 2016.

Updated 2016/17 tables will be available from 6 April 2016.