Guidance

Budget 2016

The Chancellor of the Exchequer has delivered his eighth Budget at the House of Commons, and set out the Government's spending plans.

The BVRLA has produced a summary of the key points of interest to the vehicle rental and leasing industry.


Vehicle Excise Duty

VED rates for cars and vans will increase by the rate of inflation from 1 April 2016. However, the Chancellor announced that VED on HGVs will remain frozen in 2016-17, as will the Road User Levy.

BVRLA comment: "While a reduction in VED would have been welcome, an inflationary rise was to be expected. The Chancellor’s freezing of VED on HGVs is to be welcomed, and will provide a shot in the arm for operators of large commercial vehicles."

The BVRLA’s fact sheet on VED can be accessed online.

Company Car Tax

As announced at Autumn Statement 2015, the Government reaffirmed its planned 2% increase in company car tax bands from 2017, alongside its deferral of the planned abolition of the 3 percentage point differential between diesel and petrol cars until April 2021. Both measures have been included in the Government’s upcoming Finance Bill, to be presented to Parliament following the Budget.

From 2019-20, the Treasury will raise the appropriate percentage of list price subject to tax by 3 percentage points for cars emitting more than 75g CO2 per kilometre up to a maximum of 37%. It will also introduce a 3 percentage point differential between the 0-50 and 51-75g CO2/km, and between the 51-75 and 76-94 gCO2/km bands. The Government will also consult on reform of the bands for ultra-low emission vehicles (those under 75g CO2/km) to focus incentives on the cleanest cars.

BVRLA comment: "These additional tax burdens (the 2% increase in Company Car Tax and the deferral of the 3% surcharge for diesel vehicles) on company car drivers suggests the Government sees company car drivers as a cash cow, which is unacceptable. Based on the Treasury’s figures, we calculate these measures will cost the average company car driver an additional £626.94 in 2017-18, and £882.26 in 2018-19, on top of their existing tax burden. At a time when the number of company car drivers is diminishing every year, the BVRLA has major concerns as to the effect of these decisions on the long-term tax contributions."

The BVRLA has updated its fact sheet on Business Car Taxation following the Chancellor's announcement.

Capital Allowances
 
The CO2 threshold for the lease rental restriction is linked to the threshold for capital allowances for business cars, so the rate will be reduced to 110g CO2/km from April 2018 to March 2021. This restriction will apply to expenses incurred on hiring a car above this CO2 emission threshold on or after 1 April 2018 for corporation tax and 6 April 2018 for income tax.
 
BVRLA comment: "It’s unsurprising that the Chancellor wants to reduce the main rate threshold for capital allowances for business cars from 130g/km CO2 to 110g/km in 2018, and we welcome the advance notice he has provided." 
 
The BVRLA has produced a fact sheet on Capital Allowances for members.

Enhanced Capital Allowances

The 100% First Year Capital Allowance (FYA) for businesses purchasing low emission cars will be extended for a further 3 years until April 2021, however there will be no change to the bar on leased cars from receiving such allowances. This is a discrimination which the BVRLA will continue to challenge.

BVRLA comment: "It’s pleasing to see the Chancellor extend 100% first year allowances for businesses purchasing ultra-low emission cars for a further three years until 2021, though yet again he has ignored our calls to make this benefit available for companies that lease their cars. This unfairly discriminates against SMEs who rely on lease arrangements to access new low-emission cars, and instead favours cash-rich businesses who can afford to purchase cars outright.

Tax treatment of leases

The Government has also announced that it will publish a discussion document in Spring 2016 with options to change the tax treatment of leases of plant and machinery in response to the International Accounting Standard Board’s new lease accounting standard.

The BVRLA will review this document and consider its response following discussion with members.

Insurance Premium Tax (IPT)

The standard rate of IPT will be increased from 9.5% to 10% from 1 October 2017.

Fuel Duty

Fuel duty has been frozen for the sixth consecutive year. According to the Treasury, this will save the average UK driver £75 per annum, and the average van operator £200 per annum, compared to the fuel escalator plans in place prior to 2010.

BVRLA comment: "We welcome the ongoing freeze, which we believe will provide valuable financial consistency for UK businesses, particularly SMEs."

Salary sacrifice arrangements

The Government is considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. While pension-saving, childcare and healthcare-related benefits will continue to receive relief from tax and NICs, salary sacrifice cars could still face scrutiny over the remainder of the year.

BVRLA comment: "The government says it intends to maintain the attractiveness of salary sacrifice schemes, but only mentions childcare, cycle purchase and pension schemes. We will have to wait for further announcements about cars provided under salary sacrifice schemes – but any changes would impact on the estimated £4,500 that HMRC receives in tax revenue per year from each salary sacrifice car. As well as being tax-positive for the Treasury, the evidence from our members demonstrates that the majority of recipients of salary sacrifice car schemes are those paying basic rate of tax (i.e. those employees paid less than £31,785). Cancelling or limiting salary sacrifice arrangements for cars as part of an employee package will therefore hit the lowest paid, as well as reducing their opportunity to drive a brand new car rather than an older vehicle, which is unlikely to conform to the same safety and emissions standards. We encourage the Government to recognise the value of salary sacrifice schemes as a net contributor of tax, as well their benefits in driving important behavioural changes in vehicle emissions and safety standards."

Business taxation

Corporation Tax will be reduced by 1% per annum from 2017, until it reaches 17% in 2020. In addition, Small Business Rate Relief will be doubled, the lower threshold increased to £12,000 and the upper threshold to £15,000.

BVRLA comment: "The Chancellor’s announcement that corporation tax will be cut further beyond the 20% he reduced it to in the previous government is good news for UK business, including those working in the fleet sector. The steps taken to increase Small Business Rate relief will also benefit SMEs at a time when the UK cannot take its economic position for granted."

Road investment

As announced at previous Budgets, the Government’s Roads Investment Strategy will continue to increase capital investment in the transport network to £61 billion through to 2021. It will shortly launch the second Strategy, determining investment plans for 2021 through to 2024/5. As part of the current RIS, the following projects have been earmarked for funding:

  • Accelerating the upgrade of the M62 to a four-lane smart motorway
  • Developing east-west road connections, including a new trans-Pennine tunnel under the Peak District, connecting Sheffield and Manchester, plus enhancements to the A66, A69 and the north-west quadrant of the M60.
  • Other critical road projects in the North, including capacity enhancements to the M1 at junctions 35a-39 Rotherham to Wakefield

A further £151 million will be allocated to local transport projects throughout the UK, and an additional £50 million to fill potholes around the country.

BVRLA comment: "We support the Government’s ongoing support of road improvement, and look forward to receiving details of the second Roads Investment Strategy."

Connected and autonomous vehicles

The Government aims on establishing the UK as a global centre of excellence in developing and commercialising the above technologies through the following:

  • Conducting trials in driverless cars on the strategic road network by 2017
  • Carrying out a consultation aimed at getting rid of unnecessary regulatory barriers to autonomous vehicles being launched on England’s major roads
  • Establishing a £15 million “connected corridor” from London to Dover to enable vehicles to communicate wirelessly with infrastructure and potentially other vehicles

BVRLA comment: We welcome the Government’s commitment to launching and supporting the developing technologies in connected and autonomous vehicles. However, we still believe that further steps are required, such as pushing for a common set of data standards to provide consistency across the emerging market. We look forward to discussing with Government how the industry can support and inform such changes to generate a vibrant sector in this emerging market.


The full Budget 2016 document is available to read on the Government's website.