Chancellor of the Exchequer George Osborne delivered his seventh Budget speech today (Wednesday, July 8, 2015).
Billed by the Chancellor as a “Budget for working people” and a “plan for Britain for the next five years”, it was the Chancellor’s first Budget Statement following the May general election and the first wholly Conservative Party Budget since November 1996. Below we highlight the Chancellor’s key measures from the spring Budget that will impact on the company car and van sector and wider motor industry.
Vehicle Excise Duty
The government is to completely reform Vehicle Excise Duty (VED) for cars first registered from April 1, 2017 onwards (see chart below).
First year rates of VED will vary according to the carbon dioxide (CO2) emissions of the vehicle. A flat standard rate of £140 will apply in all subsequent years, except for zero-emission cars for which the standard rate will be £0. Cars with a list price above £40,000 will attract a supplement of £310 on the standard rate for the first five years in which the standard rate is paid.
All cars first registered before April 1, 2017 will remain in the current VED system, which will not change.
New VED system for cars registered from 2017
|Emissions (g/km of co2||First year Rate||Standard Rate|
|226 - 255||£1700||£140|
|255 or more||£2000||£140|
*Cars above £40,000 pay a £310 supplement for five years
The reforms have been announced to safeguard HM Treasury’s revenue from VED with an increasing number of cars falling into existing zero or low-rated VED bands, creating what the Chancellor called “a sustainability challenge and weakening the environmental signal in VED”. That was, he said, set to continue as motor manufacturers met further stringent European Union emission targets over the coming years.
Additionally, he said: “The system results in significant unfairness as owners of newer cars pay little or no VED while owners of older cars generally pay higher rates.”
Commenting on the reforms, the Chancellor said: “The reformed VED system retains and strengthens the CO2-based first year rates to incentive uptake of the very cleanest cars whilst moving to a flat rate standard rate in order to make the tax fairer, simpler and sustainable.”
HM Treasury figures suggest that in 2014/15 almost £4.5 billion was collected in VED, but if the current system was maintained the amount would fall to less than £3 billion by 2020/21. It suggests that with the reforms VED revenue will remain above £4 billion with the revisions responsible for raising around £3.48 billion in the five years to the end of 2020-21. HM Treasury says in the current system the average annual VED across all UK motorists is £166. In the new system most will be paying an annual VED payment of £140.
The government is to guarantee that from 2020-21 all revenue raised from Vehicle Excise Duty in England will be allocated to a new Roads Fund and invested directly back into the strategic road network. The government has previously announced a series of investments to enhance and maintain national and local roads.
Demonstrating its ongoing commitment to stable investment, the government says it will publish a second Road Investment Strategy by the end of the current Parliament, building on the first published in December 2014. The Chancellor said: “Tax paid on people’s cars will be used to improve the roads they drive on. It is a major reform to improve the infrastructure and productivity of our economy - and deliver a fairer tax system for the motorist.”
The government is to once again “explore the options” for new cars to undergo their first MoT after four years rather than three years. Successive government have explored the option, but have previously ruled it out. Now the government says it will investigate the measure as part of what it called its forthcoming Motoring Services Strategy.
The Chancellor has calculated that the move could collectively save motorists more than £100 million a year.
The Chancellor ruled out any increase in fuel duty this year.
The main rate of Corporation Tax has already been cut from 28% in 2010 to 20%, in order to boost UK competitiveness. It will now fall further, from 20% to 19% in 2017, and then to 18% in 2020.
Insurance Premium Tax
The standard rate of Insurance Premium Tax will increase from 6% to 9.5% from November 2015.
Review of employee benefits and expenses
The government is to announce the reporting requirements for employers’ pay rolling cars from April 2017.
In Budget 2014, the government announced a series of measures in response to two reports from the Office of Tax Simplification aimed at simplifying what it called “the complex system” for the reporting and taxing of benefits and expenses for four million employees and 300,000 employers.
Coinciding with the Summer Budget, the government published consultation draft legislation setting out the statutory framework for pay rolling benefits-in-kind extending it to include all other than accommodation, beneficial loans and credit tokens and vouchers. However, it explicitly stated that “the additional reporting requirements for employers’ pay rolling cars will be introduced from April 2017”. The consultation closes on September 2.
Employment intermediaries and tax relief for travel and subsistence
The government has announced the next step in its move to restrict tax relief on home-to-work travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and working under supervision, direction or control.
Following a series of HM Revenue and Customs’ tribunals the measure, contained in a consultation document, will bring those individuals employed through an employment intermediary in line with others, as tax relief on home-to-work travel and subsistence expenses is not generally available to workers. In announcing the consultation, which is is open until September 30, the government said it was focused on ensuring “fairness” in the tax system.
Responses to this consultation will be used by the government to finalise proposals with a further announcement planned at Autumn Statement 2015. That will be followed by publication of draft legislation, with changes to be introduced in the Finance Bill 2016 and implemented with effect from April 6, 2016.