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Autumn Budget Brings Mixed Fortunes For Business Users

 Published 14th December 2017
HMRC / Tax 

AMIDST the Brexit furore over divorce bills, open borders, and the like, the impact of the Chancellor's Autumn Budget may have slipped under the radar, especially as it relates to business users.

The headline news, the continued freeze on Fuel Duty, is welcome but given the current cost per litre the Chancellor probably had little choice in the matter. 2017 has already seen changes that will impact on motorists - emissions-based restrictions and charges are clearly here to stay.

The Autumn Budget added more, and also left out a few details that many business motorists would rather know.

Diesel taxes will go up

In his Spring Budget in March, the Chancellor revealed that the Government was considering changes to the taxation of diesel vehicles, and promised an announcement on this in the Autumn Budget. True to his word, Vehicle Excise Duty (VED) for diesel vehicles has changed. Twice.

The first change is that from April 2018 the first year rate of VED will be higher for diesel than it will be for petrol. It still involves the sliding emissions scale but the fact remains that road tax for a diesel will be significantly higher. Anyone registering a diesel car for the first time will pay a higher rate of VED than an equivalent emission petrol car.

For example: A standard Land Rover Range Rover Sport 2.0 Diesel HSE Auto has a CO2 of 164g/km. If the vehicle is registered on 31st March 2018, the first year VED will be £500. Whereas if the vehicle is registered on 1st April 2018 the first year VED will be £800. This equates to around an £8 per month increase in rental on a 3+35 profile.

The second change relates to business users paying company car tax (CCT), but the end result is the same. There is already a diesel surcharge of 3% on company car tax rates; from April 2018 that will increase to 4%. This will apply not only to new diesel company cars, but to all those registered since 1998. If you pay company car tax on a company car and it's a diesel your tax bill will get bigger in April.

The Chancellor also announced that the VED rates for all cars registered before April 2017 will rise in line with inflation in 2018-19. For most drivers, that means they'll be paying £5 to £10 more in VED next year than they are in 2017-18.

It's not all bad news though, there are two important exemptions. The first is that the changes will not apply to vans. The second is that new, cleaner diesels that meet the Real Driving Emissions step 2 (RDE2) standard will not have to pay the higher VED rates, nor the CCT supplement. Except that none is available yet …

You can read more about the changing diesel VED rates from April 2018 here: 2018 diesel VED changes.

Where will the extra tax go?

The Chancellor has earmarked £220 million of the money raised by diesel tax increases for a new Clean Air Fund. This could make a difference to business users.

Councils will be able to bid for a share of this fund, to help them implement measures to tackle air pollution. 29 local authorities will have to publish their clean air plans next year, and they could use this additional money to invest in new charge points, subsidise public transport, or fund other similar policies.

In an attempt to involve businesses the Government has launched a joint consultation on measures to support those affected by local clean air policies. They are hoping to encourage suggestions for ways of reducing the impact on businesses which would help lower emissions. The obvious solution is to increase the roll-out of fast charging points and encourage more people to switch to an electric vehicle of some kind.

The government intends to make 25% of its fleet electric by 2022. If that commitment to electricity trickles down into additional funding for electric cars and charging infrastructure then it should provide an enormous boost for the take up of electric cars among business users.

£100 million has been earmarked to keep the Plug-in Car Grant going until 2020, helping to reduce the up-front cost of an electric car. The Chancellor also pledged £200 million of Government money to roll out more charge points across the country, to be matched by another £200 million from private investors. If charge-points are readily accessible more businesses can choose to use low-emission vehicles, and subsequently reduce their tax liability.

More importantly there was clarification on an important question. Technically speaking, if you use an electric vehicle for business use and you charge that vehicle in work, the “free” electricity from work could have been classed as a benefit in kind, which would be taxable. We now know that from April 2018, employees will not face any benefit-in-kind tax on the electricity they use to charge their vehicles while at work.

What was missing?

Many people were hoping that the Chancellor would use the Autumn Budget to finally reveal the Company Car Tax rates for 2021-22, and maybe even 2022-23. They were left disappointed. There was no new detail beyond the 2020-21 rates published last December. Not what businesses were hoping for given the time-frames they work on.

Most leases run for at least three years which means anyone signing a lease today is committed until the 2021/2022 tax year, and beyond. That's fine for the next two years but how are you supposed to plan your tax liabilities for the final year of the lease when the government won't tell you what the tax rates will be?

The Chancellor needs to publish the rates for 2021-22 and 2022-23 as a matter of urgency to provide businesses with the information they need to plan properly.

On the plus side, the Chancellor did provide some clarity on CCT and VED, with regards to the new emissions testing regime that began in September. CO2 emissions figures from the old New European Driving Cycle (NEDC) tests will continue to be used to calculate CCT and VED rates until April 2020, from which point the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) results will be used instead. You may not know the rate you will pay but at lease you know what you will be taxed on.

It's almost a cliché to describe a Budget as a ‘mixed bag'. But Philip Hammond's Autumn Budget really was a mixed bag for business motorists. Yes, the freeze on fuel duty continues, and there will be massive investment to support electric motoring. But if you currently drive a diesel the thought of paying for it all may not leave you feeling particularly warm and fuzzy.

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