What Sort Of Impact Will The Spring 2019 Budget Have On Vehicle Taxation Etc?

Chancellor of the Exchequer Philip Hammond’s second Spring Statement yesterday 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.

Company car benefit-in-kind tax to increase
April 6, the start of the 2019/20 tax year, signals a further rise in company car benefit-in-kind tax bills as illustrated below.

For example, the average emissions of a British Vehicle Rental and Leasing Association-member provided new company car is 118g/km of CO2, according to latest figures. That means a rise from 24% of the P11D value in 2018/19 to 27% in 2019/20 for a petrol-engined model.

Company car tax 2018/19 to 2020/21

% of
P11D

2018/19
2019/20
2020/21

Price
CO2 (g/km)
CO2 (g/km)
CO2 (g/km)/electric mileage range

 
 
 
 

0
N/A
N/A
 

2
N/A
N/A
0-50 (zero emission or 130 miles+)

5
N/A
N/A
1-50 (70-129 miles)

7
N/A
N/A
N/A

8
N/A
N/A
1-50 (40-69 miles)

9
N/A
N/A
N/A

10
N/A
N/A
N/A

11
N/A
N/A
N/A

12
N/A
N/A
1-50 (30-39 miles)

13
0-50
N/A
N/A

14
N/A
N/A
1-50 (under 30 miles)

15
N/A
N/A
51-54

16
51-75
0-50
55-59

17
N/A
N/A
60-64

18
N/A
N/A
65-69

19
76-94
51-75
70-74

20
95-99
N/A
75-79

21
100-104
N/A
80-84

22
105-109
76-94
85-89

23
110-114
95-99
90-94

24
115-119
100-104
95-99

25
120-124
105-109
100-104

26
125-129
110-114
105-109

27
130-134
115-119
110-114

28
135-139
120-124
115-119

29
140-144
125-129
120-124

30
145-149
130-134
125-129

31
150-154
135-139
130-134

32
155-159
140-144
135-139

33
160-164
145-149
140-144

34
165-169
150-154
145-149

35
170-174
155-159
150-154

36
185-189
175-179
160-164

37
180+
165+
160+

  • From April 6, 2018 for each tax year add 4% for diesel cars up to a maximum of 37%. Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt.

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 rates increase by inflation
Vehicle Excise Duty from April 1, 2019 for cars first registered

Emissions (g/km) of CO2
First year rate petrol
cars and RDE2
standard diesel cars
First Year rate non-
RDE2 diesel cars
Alternative fuel
cars

0
£0
£0
£0

1-50
£10
£25
£0

51-75
£25
£110
£15

76-90
£110
£130
£100

91-100
£130
£150
£120

101-110
£150
£170
£140

111-130
£170
£210
£160

131-150
£210
£530
£200

151-170
£530
£855
£520

171-190
£855
£1,280
£845

191-225
£1,280
£1,815
£1,270

226-255
£1,815
£2,135
£1,805

Over 255
£2,135
£2,135
£2,125

Rates for second tax payment onwards for cars registered after April 1, 2017

Fuel type                     12 month rate

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

VED Band
CO2 emissions
(g/km)
Standard rate*

A
Up to 100
£0

B
101-110
£20

C
111-120
£30

D
121-130
£125

E
131-140
£145

F
141-150
£160

G
151-165
£200

H
166-175
£235

I
176-185
£260

J
186-200
£300

K**
201-225
£325

L
226-255
£555

M
Over 255
£570

*Alternative fuel discount 2019/20 £10 all cars

**Includes cars emitting over 225 g/km registered before March 23, 2006

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.

Capital allowances
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

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