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Budget - the headlines

Budget - the headlines

Chancellor of the Exchequer Philip Hammond delivered his first Budget speech  (Wednesday, March 8, 2017).

It was also the final spring Budget as Mr Hammond announced in last November’s Autumn Statement a rescheduling of the two major fiscal-related announcements of the Parliamentary year.  

Starting in the autumn, Britain will have an Autumn Budget announcing tax changes “well in advance of the start of the tax year”. From 2018 there will be a Spring Statement, responding to the forecast from the Office of Budget Responsibility, but no major fiscal event.  

As a result, with this week’s Budget coming just four months after the Autumn Statement it has been viewed as a “transitional Budget”. Indeed many tax measures, including those relating to company car benefit-in-kind tax to the end of 2020/21, Vehicle Excise Duty for cars first registered from April 1, 2017, capital allowances, car fuel benefit charge, van benefit charge, van fuel benefit charge, Corporation Tax and Insurance Premium Tax had been previously announced.  

However, a number of new announcements impacting on the fleet industry were contained in the Budget Statement and are highlighted below. 

Car salary sacrifice schemes and cash or car allowances  
New rules governing car salary sacrifice schemes and cash or car allowances come into effect on April 6, 2017, as announced in the 2016 Autumn Statement, but the Budget failed to provide clarity on the specifics.  

On December 5 last year, the government published a policy paper ‘Income Tax: Limitation on Salary Sacrifice’ that outlined the changes. However, there have been subsequent meetings with tax experts and industry bodies to discuss the impact of the proposals.  

As a result, it was expected that final clarification on the changes would be published with the Budget papers. However, that did not happen so expect to see a separate HM Treasury announcement, potentially on or around 20 March, confirming the minutiae of the new rules in the very near future.

Air quality and diesel vehicles  
The government has served notice that the “tax treatment for diesel vehicles” could change as it seeks to cut pollution from the transport sector and improve air quality.  

The government said it was committed to improving air quality and would consult on a detailed draft plan shortly that would set out how the UK’s air quality goals would be achieved.  

Alongside that, the government said it would continue to explore what it called “the appropriate tax treatment for diesel vehicles”, which included engaging with stakeholders ahead of making any tax changes at Autumn Budget 2017.  

As a result, fleets can expect diesel vehicle tax changes - and potentially increases - as the government reinforces its air quality strategy and its mission to convert fleets and consumers to plug-in and ultra-low emission vehicles.

Taxation of benefits-in-kind and employee expenses  
Employers can choose to remunerate their employees in a range of different ways, but the tax system treats those different forms of remuneration inconsistently.  

As a result, the government is considering how the tax system could be made fairer and more coherent, including by looking at the taxation of benefits-in-kind and employee expenses.  

Consequently the government is to:
Publish a call for evidence on exemptions and valuation methodology for the income tax and employer National Insurance Contributions’ treatment of benefits-in-kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.         

Publish a call for evidence to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.

Publish a consultation with proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax and to support taxpayers during any transition. 

Whether the government’s plans will impact on employers and employees in terms of company car benefit-in-kind taxation, business mileage reimbursement and travel expenses generally remains to be seen when the documents relating to the calls for evidence and consultation are published.

Driverless car technology  
The Budget included an announcement on an investment of £270 million to keep the UK at the forefront of so called “disruptive technologies” which includes driverless vehicles as well as biotech and robotic systems. No further details are currently available.  

Investment to ease traffic congestion
The Budget committed the government to spending £90 million in the North and £23 million in the Midlands from a £220 million fund that addresses traffic congestion pinch-points on the national road network.  

Additionally, the government has launched a £690 million competition for local authorities across England to tackle urban congestion and get local transport networks moving again. The Transport Secretary will announce details shorty.

Other announcements
Fuel duty - frozen again in 2017. It is the seventh consecutive year that there has been no increase.           
Vehicle Excise Duty (VED) - from 1 April, 2017, VED rates for cars registered before 1 April, 2017 and VED rates for vans increase by RPI. 

Industry experts comment on the Budget announcements   Gerry Keaney, chief executive, British Vehicle Rental and Leasing Association, said: “Mr Hammond’s first and last Spring Budget was the perfect opportunity to create a fairer, simpler tax system that incentivises the uptake of ultra-low emission vehicles. We are now left with company car tax and Vehicle Excise Duty regimes that do little to support the government’s ‘green’ agenda or tackle the growing air quality crisis. At the moment, a 20% taxpayer choosing between a pure electric BMW i3 and a hybrid Mitsubishi Outlander - both of which have similar P11d values and sit in the same tax band - will pay the same company car tax over the next three years. The current regime provides no incentive to choose a pure electric vehicle until 2020. The BVRLA’s call for the government to bring the introduction of the new 2% rate forward from 2020 to 2017 would incentivise drivers to choose cleaner cars now.”

Matt Dyer, managing director, LeasePlan UK, said: “For almost as long as there have been petrol stations, fuel duty has been unavoidable, and sometimes controversial. It accounts for 57.95p of every litre of petrol or diesel bought. The rate of fuel duty has been frozen since March 2011, saving the driver in households and businesses on average £130 and those who work in logistics, with light commercial vehicles saving an estimated £350 per year. However, the UK still has one of the highest levels of taxation on fuel, which places an undue burden on motorists. This, it can be argued, restricts economic growth through lost investment and expansion by businesses. With inflation increasing, a litre of petrol has gone up by 19p in the last 12 months, whilst for diesel it’s 22p. Managing increases to the cost of living is likely to be one of Philip Hammond’s greatest challenges.

Paul Hollick, chairman ICFM, said:  “Fleets can expect diesel vehicle tax changes - and potentially increases - in the future as the government continues to develop its strategy to improve air quality. Hidden in the small print of the Budget papers was a pledge by the government “to explore the appropriate tax treatment for diesel vehicles, and [to] engage with stakeholders ahead of making any tax changes at Autumn Budget 2017”. The writing is on the wall for fleet reliance on diesel vehicles - and diesel company cars specifically. Since the introduction of CO2-based company car benefit-in-kind tax in 2002, fleets have been reliant on diesel vehicles being the bedrock of fleet operations. With the government’s focus on improving air quality, the introduction of Clean Air Zones and cities globally introducing diesel car bans, it is clear that fleets must reduce their dependence on diesel power and develop a strategy that focuses on plug-in vehicles and ultra-low emission vehicles. A failure to do so will almost inevitably trigger an increase in the whole life cost of operating diesel models. Clearly we will have to wait until the Autumn Budget for some clarity, but forward-thinking fleet operators should start to review current policies and plan for a future that is less reliant on diesel.”

Gerry Keaney, chief executive, British Vehicle Rental and Leasing Association, said: “HM Treasury’s Budget documentation announced that the government will continue to explore ‘the appropriate tax treatment for diesel vehicles’, and will engage with stakeholders ahead of making any tax changes at Autumn Budget 2017. Diesel vehicles remain a vital part of the fleet mix, as diesel engines are the most energy-efficient internal combustion engines. It is often the most appropriate powertrain for long distance journeys and non-urban freight transportation, and the latest Euro6 diesel engines have made some major gains in reducing harmful NOX emissions. As one of the stakeholders engaged with HM Treasury, we look forward to working with policymakers to ensure they do not adversely impact the UK automotive sector.”

David Bizley, chief engineer, RAC said: “The Chancellor has fired a warning shot at diesel owners and drivers, with the suggestion in the Budget document that a new tax regime covering diesel vehicles could be announced before the end of the year This uncertainty is bound to be of concern to private and business motorists alike, who will be wanting urgent clarity on just what the government plan to do.”  

Ashley Sowerby, managing director, Chevin Fleet Solutions, said:
“For fleet, the message to come out of the Budget is a relatively calm announcement despite an unpredictable economic outlook. There are a number of individual interesting points for the industry - perhaps one of the most notable being that a much-rumoured diesel scrappage scheme was in fact not included in the Budget. However, changes to Vehicle Excise Duty will go ahead as planned in April 2017 and we know that the government is continuing to assess diesel’s role in clean air strategies - so the further developments in relation to this fuel could still be on the cards in the Autumn Budget. Meanwhile, the industry will welcome the fact that fuel duty has been frozen once again this year - for the seventh year running. In terms of technology, the investment into automotive research and development clearly underpins the trend towards connected and automotive vehicles. And speaking of investment, plans to launch a £690 million competition for local authorities to help tackle urban congestion and ‘get transport networks moving again’ will be welcomed by the fleet industry. With the UK currently ranked as the fourth most congested country in the world, fleet continues to be greatly affected by the cost of drivers sitting in traffic.”

Paul Hollick, chairman ICFM, said: “New rules governing car salary sacrifice schemes and cash or car allowances come into effect on April 6, 2017, but the Budget failed to provide clarity on the specifics. ICFM research among fleet decision-makers has highlighted car salary sacrifice and company car tax along with cash or car allowance issues as the biggest challenge this year and following. On December 5 last year, the government published a policy paper ‘Income Tax: Limitation on Salary Sacrifice’ that outlined the changes. However, there have been subsequent meetings with tax experts and industry bodies to discuss the impact of the proposals. It was expected that final clarification on the changes would be published with the Budget papers. Fleet decision-makers need clarity and with the changes due to come into effect in less than a month, companies need that information quickly to avoid making rash decisions based on a lack of information. ICFM now understands that a further document will be published by HM Treasury on or around March 20.”
The ICFM is holding a Masterclass on the changes to car salary sacrifice scheme and cash or car allowance rules on Wednesday, March 22 from 10am-2.30pm. It is being hosted by RAC at its operations control centre alongside the M6 in the West Midlands: RAC House, Brockhurst Crescent, Bescot, Walsall WS5 4AW. The cost of attending the Masterclass is £99 for ICFM members and £135 for non-members. For further information and to book a place email the ICFM hub at [email protected].

Matt Dyer, managing director, LeasePlan UK, said: “It’s encouraging that the Treasury is continuing to invest in the UK’s road infrastructure, and we look forward to seeing what the Department for Transport and Highways England have planned for their second Road Investment Strategy later this month. Following the announcement from the Office of Rail and Road that the quality of roads has fallen below previously agreed targets, the government needs to provide for better connected and more dynamic infrastructure that suits both the needs of people and businesses. The vehicle rental and leasing industry contributes around £25 billion a year to the UK economy and in 2016 the leasing industry accounted for more than half the number of new cars registered on the road. So, this news will be especially pleasing for UK businesses, whose roads have suffered from poor organisation, congestion and pitted surfaces for decades. These roads are vital for the businesses that will power the country through challenging economic circumstances, so it is reassuring that the UK government now views this as a priority.”  

David Bizley, chief engineer, RAC said:
“We welcome more funds to tackle urban congestion - not least because congestion goes hand-in-hand with poor air quality, so tackling one can help the other. However, we’ll need to look carefully at how councils will be expected to bid for money. What we certainly don’t want to see is a situation where local authorities have to take part in an expensive, protracted process simply to have the funds they need to sort out well known bottlenecks on our town and city centre roads. We’re disappointed however that more funding wasn’t announced on preventative road maintenance - this is a missed opportunity given the dire state of many local roads. The RAC Pothole Index showed that the number of pothole-related breakdowns has doubled in the last 10 years, and remain a constant source of frustration for motorists.” 

Edmund King, president, AA, said: “The AA is pleased to see the government is continuing with its investment in road building and easing congestion. We know from Department for Transport statistics that, if there is traffic on the road you need, on average, an extra 41 minutes to make a one-hour journey. The £90 million for roads in the North and £23 million for roads in the Midlands are welcome but ‘small beer’. The £690 million urban congestion competition should also help, but the government needs to work faster in tackling congestion without compromising safety. As well as more funding, local authorities need to do their bit in assessing if a road is beyond patching and should be resurfaced to avoid repairing the same potholes time and again.”  

Paul Hollick, managing director, The Miles Consultancy, said:
“There were some important pointers to future government policy toward fleets in the Budget. Fleets will get the chance to have their say on diesel taxation in the coming months, ahead of what could be big changes in the Autumn Budget. One clue from the Red Book is that the Treasury expects revenues from fuel duty to rise by £2 billion to £30 billion a year by 2021. Then we had the announcements around investments in electric vehicle battery development and the publication of the government’s 5G strategy, which has a strong focus on mobile data and advanced business mobility. It may have looked like a quiet Budget, fleet wise, but there’s a lot for business strategists to think about.”

Peter Golding, managing director, FleetCheck, said: “There was little in the Budget that has a direct impact on the fleet industry and, in one sense, no news is good news. However, there are issues worth highlighting. First is that the question of the impact of diesel on air quality - and whether this should affect their tax treatment - has been delayed until the Autumn. Secondly, and most disappointing, is that there was no change to the new Vehicle Excise Duty regime which comes into effect next month and which in many ways makes little sense for fleets.”

Gerry Keaney, chief executive, British Vehicle Rental and Leasing Association, said: The Chancellor chose not to defer the introduction of new Vehicle Excise Duty (VED) rates which come into force next month. As a result, the car hire industry will see its first year VED bill rise by almost 400% in 2017. Firms will also be unable to claim back £1.67 million every year in legitimate refunds. Car rental companies operate the newest fleet on UK roads, and the average rental car is just eight months old. The sector purchases around 324,000 cars each year, but this number is now likely to fall as our members lengthen their operating cycles in an attempt to reduce the cost impact of the new VED regime.”