The Government’s Spring Statement 2019 and how April 2019 changes to vehicle-related taxes will hit fleets and drivers
Chancellor of the Exchequer Philip Hammond’s second Spring Statement today (Wednesday, March 13) was an update on the health of the UK economy and the state of the Government’s finances, rather than laying out any major new tax or spending announcements.
The fleet industry had hoped that the Chancellor in his 35-minute speech would indicate the “direction of travel” on any changes to the existing company car benefit-in-kind tax and Vehicle Excise Duty regimes from April 2020 in the wake of last year’s introduction of the Worldwide harmonised Light vehicles Test Procedure (WLTP).
However, the fleet industry was left disappointed as the Chancellor merely stated that “in the coming months” the Government would publish its response to its recent call for evidence in relation to its review into the impact of WLTP on company car tax benefit-in-kind tax and Vehicle Excise Duty.
The lack of clarity means that fleets and company car drivers continue to have no idea as to what company car benefit-in-kind tax rates will be from 2021/22 as rates have only been published up to and including 2020/21 (see table below), or if those already announced rates for 2020/21 will change.
HM Treasury is conducting the review because it says it wants to ensure the Government “strikes the balance between protecting consumers and meeting our climate change commitments”.
Meanwhile, there was also no word from the Chancellor on the future shape of Vehicle Excise Duty for light commercial vehicles.
The Government intends to replace the current flat rate (2019/20: £260 a year/£140 for early Euro 4 and Euro 5 compliant vans/60% of the main charge for zero emission vans) with, from April 2021, a two-category approach, graduated by carbon dioxide (CO2) emissions when the van is first registered, followed by a standard rate for subsequent years.
The Government has previously indicated that:
• The new system would take account of van weight with a two-category approach each sub-divided into CO2 bands
• Ongoing incentives would be provided in the first year and beyond for new zero emission, ultra-low emission and other alternatively fuelled vans.
The exact weight categories, CO2 bandings and new Vehicle Excise Duty rates will be announced by the Government prior to April 2021 implementation. The Chancellor also stated that in the coming months, the Government would publish:
• Future of Mobility: Urban Strategy - a publication setting out its approach to putting the UK at the forefront of mobility, and responding to the significant changes taking place in transport technology - such as the growth in electric vehicles, the development of self-driving vehicles and advances in data and internet connectivity.
• Insurance Premium Tax operational review - a call for evidence on where improvements could be made to ensure that Insurance Premium Tax operated fairly and efficiently.
• Offsetting Transport Emissions - a call for evidence to explore consumer understanding of the emissions from their journeys and their options to offset them and thereby travel ‘zero carbon’. It will also look into whether travel providers should be required to offer carbon offsets to their customers.
However, the Chancellor did announce £60 million of investment from the Government’s Transforming Cities Fund in 10 cities across England.
The cash will fund 30 new schemes such as bus station upgrades, new cycle lanes and road improvements, supporting the wider programmes being delivered by city regions as part of the Government’s Industrial Strategy.
The 10 cities were selected for the competitive fund in September 2018, and are: Derby and Nottingham, £7.2 million; Southampton, £5.7 million; Leicester, £7.8 million; North East Combined Authority, £10 million; Portsmouth, £4 million; Norwich, £6.1 million; Sheffield City Region, £4.2 million; Plymouth, £7.6 million; West Yorkshire Combined Authority, £2.2 million; and Stoke-on-Trent, £5.6 million.
The Chancellor did tell the House of Commons that the UK economy continued to grow, with wages increasing and unemployment at historic lows, “providing a solid foundation on which to build Britain’s economic future”.
But, while the economy was “fundamentally robust”, the Chancellor admitted that “uncertainty” hung over it in the shape of Brexit with agreement still to be reached between the Government and the European Union on the terms of the UK’s departure due on March 29.
What’s more, in the event of a no-deal Brexit, the Chancellor warned that the result would be: higher unemployment, lower wages and higher prices in the shops.
Meanwhile, a number of previously announced key tax-related measures will be introduced next month (April) that impact on fleets and company car drivers. They are highlighted below.
New ‘clarification rules’ on Optional Remuneration Arrangements (OpRA) to bite
The Government has further clarified Optional Remuneration Arrangements (OpRA) rules, two years after their introduction.
Applying to car salary sacrifice schemes and car or cash allowances, the Government has clarified ‘connected cost’ rules, which are effective from April 6, 2019.
The amended rules make clear that “when a taxable car or van is provided through OpRA, the amount foregone includes costs connected with the car or van which are regarded as part of the benefit-in-kind under normal rules”.
The ‘explanatory note’ that accompanied the clarification announcement highlighted vehicle insurance as an example, but it also includes the costs associated with the provision of vehicle breakdown and recovery, service and maintenance and tyres and all other related “connected costs” that keep a vehicle on the road, with the exception of fuel.
Initially, legislation suggested that such ‘costs’ were excluded under OpRA rules. However, fleet industry discussions with HM Revenue and Customs to seek clarification on OpRA, which came into effect on April 6, 2017, highlighted what officials called “anomalies”.
Industry estimates have suggested that for those drivers affected, it could cost them an additional £100-240 in tax per year. Employers will also pay additional Class 1A National Insurance.
Additionally, the Government says that where a taxable car is provided through OpRA for only part of a year a pro-rata deduction applies to the value of the capital contribution just as is normal under company car benefit-in-kind tax charge rules.
Vehicle Excise Duty from April 1, 2019 for cars first registered
Rates for second tax payment onwards for cars registered after April 1, 2017
12 month rates:
- Petrol or diesel £145
- Electric £0
- Alternative fuel £135
Cars with a list price above £40,000 pay a £310 supplement for five years from the second time the vehicle is taxed.
Vehicle Excise Duty from April 1, 2019 for cars registered between March 1, 2001 and March 31, 2017
Vehicle Excise Duty bands and 2019/20 rates for vans registered on or after March 1, 2001
Early Euro 4 and Euro 5 compliant vans - £140
All other vans - £260
Car and van fuel benefit charges and van benefit charge
The annual increase in car and van fuel benefit charges and the van benefit tax charge means that in 2019/20 the rates are:
• Car fuel benefit charge: £24,100 (2018/19: £23,400)
• Van benefit-in-kind tax charge: £3,430 (2018/19: £3,350)
• Van fuel benefit charge: £655 (2018/19: £633) The tax charge for zero-emission vans increases in 2019/20 to 60% from 40% of the main rate.
A change in capital allowances for business cars with CO2 emissions of more than 110g/km comes into effect with the 8% rate cut to 6% from April 1, 2019. The two other thresholds for capital allowances on cars bought outright remain unchanged and are:
• Vehicles up to 50g/km: Companies can write down the full cost against their taxable profits
• Vehicles emitting 51-110g/km: Companies can write down 18% of the cost of the car against their taxable profits each year, on a reducing balance basis