29th November 2017
Against the backdrop of downgraded growth forecasts and stagnating productivity levels, the Chancellor, Philip Hammond, delivered a politically charged, investment driven Budget on 22nd November designed to position an outward looking, globally focused Britain at the forefront of a new technological revolution.
Billions have been set aside for investment in health, housing, infrastructure, communication and artificial intelligence, but what are the key tax and spending announcements that business car drivers, fleet operators and the wider automotive industry should take notice of?
As promised in the Spring Budget, the Chancellor has taken action to increase the taxation of diesel cars in order to fund a new, £220m Clean Air Fund designed to support the implementation of local air quality plans to improve the quality of air in cities and towns hroughout the UK.
Company car tax
From April 2018, a diesel supplement of 4% will be applied to cars that do not meet the Real Driving Emissions (RDE) Step 2 standard. This replaces the current 3% supplement and will affect both company car drivers and their employers, whose Class 1A National Insurance Contributions will rise. HM Treasury has acknowledged that it expects few, if any, diesel cars will meet the standard in 2018/19.
As with the current rules, the new regime will not apply to diesel hybrids.
Vehicle Excise Duty (VED)
For cars registered after 31 March 2018 that do not meet the RDE Step 2 standard, a the first year VED rate will be calculated as if the car was in the VED band above, increasing the first year VED by as much as £520.
What is RDE Step 2?
The RDE test was introduced on 1 September 2017 to include a real-world component to the laboratory based Worldwide Harmonised Light Vehicles Test Procedure (WLTP), which has been introduced to provide more accurate emissions and consumption figures.
To allow time to adapt to the new requirements, compliance thresholds will be reduced in stages as follows:
- To comply with the requirements of RDE Step 1 a car’s real-world NOx emissions must not exceed 210% of the Euro 6 emissions standard.
- RDE Step 2 tightens this NOx conformity factor to 150% from January 2020.
Changing the basis of company car tax and VED
For many years the company car tax and VED bands have been based on CO2 emissions generated using the New European Driving Cycle (NEDC), but the government has confirmed that company car tax and VED will be based on WLTP with effect from April 2020. Until then, NEDC figures will be generated from WLTP for new models registered after 1 September 2017 and all new cars registered from 1 September 2018.
Van benefit charge
From 6 April 2018 the van benefit charge will rise in line with inflation to £3,350 (from £3,230), with electric vans taxed at 40% of full charge.
Fuel benefit charge
The multipliers will rise in line with inflation, as follows, with effect from 6 April 2018:
- van benefit fuel multiplier – £633 (from £610); and
- car fuel benefit multiplier – £23,400 (from £22,600).From April 2018, employees charging electric vehicles at work will not be subject to BiK tax regardless of whether the car is a company car or privately owned. Capital allowances Fuel duty on petrol and diesel has been frozen for the eighth year, at a total cost to the Exchequer of £46 billion and a saving to the average car driver of £850 and the average van driver £2,100 over that period. The fuel duty escalator for Liquefied Petroleum Gas (LPG) will end and the LPG duty rate will be frozen in 2018/19.Vehicle Excise Duty (VED) The government has confirmed it has no plans for a fundamental reform of the tax relief on employee expenses, but promised to improve its guidance, particularly on travel and subsistence and the process for claiming tax relief on non-reimbursed employment expenses
Taxation on employee business expenses
From April 2019 zero-emission capable taxis will be exempted from the VED supplement applied to cars with a list price over £40,000.
VED and levy rates for heavy goods vehicles will be frozen once again.
From April 2018, the first-year rates for cars registered after 31 March 2017, and the standard rates for vans, motorcycles and cars registered before 1 April 2017 will rise in line with inflation.
The availability of first year allowances for zero-emission goods vehicles, and gas and hydrogen refuelling equipment will be extended to from March 2018 to April 2021.
What did we know already?
Although there were some important measures announced in the Autumn Budget, we thought it worthwhile to recap some previously announced measures that will begin to affect fleets from April 2018.
Capital allowance thresholds from April 2018
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.
Company car tax from April 2018
The BiK percentage for all CO2 emission bands will increase as follows:
- the lowest BiK percentage, for cars with emissions between 0 g/km and 50 g/km will rise from 9% to 13%;
- for cars with emissions between 51 g/km and 75 g/km the BiK percentage will rise from 13% to 16%; and
- for all other cars with emissions up to 180 g/km the BiK percentage will rise by 2%; so that
- the maximum 37% will be applied to cars with emissions of 180 g/km or greater.
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%.
Company car tax rates beyond 2021 will be published next autumn in Budget 2018.
Lease accounting under IFRS 16
The government has already confirmed that proposed lease accounting changes will not change the basis of lease taxation, but as promised in the Spring Budget the government will publish a consultation document on 1 December 2017 regarding the legislative changes required to ensure the income and corporation tax rules for leased plant and machinery continue to work as they do currently, and on the wider impact of the accounting change for income and corporation tax.
The National Productivity Investment Fund (‘NPIF’) was created in spring 2017 to improve UK productivity by investing in strategic innovation and infrastructure projects. The Chancellor has now increased the size of the fund from £23 billion to £31 billion and targeted its investment at housing, transport, research and development and digital communications in an effort to drive up productivity.
Next generation vehicles
Notable projects to be supported by the NPIF include:
Connected and autonomous cars
The government believes that digital technologies have the potential to transform the economy, estimating that the UK driverless car industry alone could be worth £28 billion to the UK economy and employ 27,000 people. To ensure fully self-driving cars are running on UK roads by 2021, the government will change the regulatory framework so that driverless cars can be tested without a human safety operator.
The National Infrastructure Commission will also launch a new innovation prize to determine how future roadbuilding should adapt to support self-driving cars.
Ultra-low emission vehicles
To support the transition to zero emission vehicles, the government will:
- invest £200 million, to be matched by private investment, into a new £400 million Charging Investment Infrastructure Fund;
- commit to electrify 25% of cars in central government department fleets by 2022;
- provide £100 million to guarantee continuation of the Plug-In Car Grant to 2020; and
- ensure all new homes are built with the right cables for electric car charge points and invest £40 million for research in to charging.
A new £1.7 billion Transforming Cities Fund will support intra-city transport by improving connectivity, reducing congestion and utilising new mobility services and technology.
An additional £45 million will be invested this year in a Pothole Fund to tackle around 900,000 potholes across England.
A new National Infrastructure Commission study on the future of freight infrastructure will look at urban congestion, decarbonisation and how to harness the potential of new technologies, including platooning, where trucks travel in convoy using smart technology to communicate.
As the UK has an opportunity to become a world leader in 5G mobile communications a further £160 million will be invested in new 5G infrastructure. One of the first projects to be allocated funding will be a trial, starting in 2018, designed to test 5G applications and deployment on roads, building on the work already progressing on connected and autonomous vehicle trials in the West Midlands
Tolls on river crossings
As previously announced, the Severn Bridge Crossing toll will be reduced from 8 January 2018 and abolished at the end of 2018.