Chancellor of the Exchequer Philip Hammond delivered the Government’s annual Autumn Statement in the House of Commons today (Wednesday, November 23).
Sometimes described as a mini-Budget, he revealed to the nation the state of the country’s economy and public finances, in line with the latest economic forecasts from the independent Office for Budget Responsibility.
It was Mr Hammond’s first Autumn Statement and it was also his last as he announced that he was abolishing the annual ritual.
Explaining that “no other major economy made hundreds of tax changes twice a year” in the spring Budget and the Autumn Statement, Mr Hammond said the spring Budget in March 2017 would also be the final one.
Instead, starting in autumn 2017, 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.
Below we highlight what the Chancellor said in relation to the UK fleet industry and the wider motor industry in the 2016 Autumn Statement.
However, many issues remain to be clarified, particularly in relation to salary sacrifice rules and company car benefit-in-kind tax changes. The overview of legislation in draft, providing further information on all tax changes and updates on all tax consultations, will be published on December 5. Draft Finance Bill clauses, explanatory notes, tax information and impact notes, and responses to consultations will also be published on that date.
The government has bowed to fleet industry lobbying from the likes of ACFO and the British Vehicle Rental and Leasing Association and given a partial exemption to ultra-low emission vehicles under changes to salary sacrifice rules.
Furthermore, following a consultation on limiting the range of benefits that attract income tax and National Insurance contribution advantages when provided as part of salary sacrifice schemes, existing arrangements for cars will remain protected under ‘grandfathering rights’ until April 2021.
The Chancellor said: “Following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, cycle to work and ultra-low emission cars.
“This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.”
The government has confirmed that the threshold for ultra-low emission cars for salary sacrifice purposes will be up to 75g/km CO2.
As a result of the Chancellor’s announcement, salary sacrifice schemes will be subject to the same tax as cash income as announced in the consultation document, which was published in August. However, there was no mention in the Autumn Statement documentation as to whether the new salary sacrifice rules would also apply to cash allowances.
The Chancellor said: “To promote fairness and broaden the tax base, the government will phase out the tax advantages of salary sacrifice arrangements.”
It is expected that, as outlined in the consultation document, employees’ tax will be aligned to the greater of the taxable value of the company car or the cash alternative (salary sacrifice/cash allowance) if their contract of employment stipulates the option. If an employee’s contract stipulates their entitlement to a company car only then the new rules do not apply.
Salary sacrifice drivers typically opt for cars with as low emissions as possible to capitalise on tax and National Insurance savings, allied to the best possible fuel consumption.
Among the most popular cars selected through corporate salary sacrifice schemes are the Ford Fiesta and Audi A3. Assuming that the employee choosing a Fiesta is a 20% taxpayer and the employee selecting an A3 is a 40% taxpayer, the following figures illustrate the potential cost increase they, and their employers’, face when the new rules are implemented.
Example 20% taxpayer
Ford Fiesta Zetec ECOnetic 1.5TDCi 5dr (82g/km)
Cash alternative = £4,000
P11D value = £16,590
Company car BiK 2017/18 value = £3,318
Tax on BiK value = £664
Tax on cash = £800
Class 1A NIC = £458
Class 1A NIC = £552
Employee’s increase in income tax = £136 (+20%)
Employer’s increase in Class 1A NIC = £94 (+20%)
Example 40% taxpayer
Audi A3 1.6TDI Sportback SE Technik 5dr (99g/km)
Cash alternative = £6,500
P11D value = £22,675
Company car BiK 2017/18 value = £4,762
Tax on BiK value = £1,901
Tax on cash = £2,600
Class 1A NIC = £657
Class 1A NIC = £897
Employee’s increase in income tax = £699 (+37%)
Employer’s increase in Class 1A NIC = £240 (+37%)
Company Car Tax
To provide stronger incentives for fleets to operate ultra-low emission cars and employees to choose them as company cars, the Chancellor has announced changes to benefit-in-kind tax from 2020/21.
However, the small print of the Autumn Statement document would appear to indicate that benefit-in-kind tax rates on ultra-low emission cars will be slashed when compared to those for 2019/20, which are already known.
Budget 2016 confirmed that company car benefit-in-kind tax rates for cars with CO2 emissions of 0-50g/km would be 16%, 19% for those with CO2 emissions of 51-75g/km, 22% for those with CO2 emissions of 76-94g/km, 23% for those with CO2 emissions of 95-99g/km and then rising in 1% point intervals up to 37% for cars with CO2 emissions of 165g/km and above.
However, the Autumn Statement revealed that the appropriate percentages for zero emissions cars would be 2%, effectively signalling a reduction of 14 percentage points in the tax rate for such cars.
In addition, following a consultation document published in August, the Autumn Statement suggested that benefit-in-kind tax thresholds for cars with CO2 emissions between 1-50g/km would vary between 2% and 14% depending on the number of zero emission miles a car can travel. The full details of tax and mileage thresholds have yet to be confirmed.
The Autumn Statement also confirmed that the appropriate percentages on cars with emissions above 90g/km would increase by one percentage point up to a maximum of 37%. However, that raises questions as to what the tax rate will be for cars in the 51-89 CO2 bracket. It also requires a realignment of existing and long-established emission thresholds, which from 76-94 g/km rise in 5g/km intervals from 95g/km.
Car fuel benefit charge 2017/18
Employees who are in receipt of company-funded fuel used privately will see their benefit-in-kind tax bills rise from April 6, 2017.
The Chancellor announced in the Autumn Statement that the fuel benefit charge multiplier for company cars would increase from £22,200 in 2016/17 to £22,600 in 2017/18.
Van benefit charge 2017/18
The van benefit-in-kind tax charge will increase from £3,170 in 2016/17 to £3,230 in 2017/18, the Autumn Statement confirmed.
Van fuel benefit charge 2017/18
From April 6, 2017 the van fuel benefit charge multiplier will increase from £598 in 2016/17 to £610 in 2017/18, the Autumn Statement confirmed.
Electric vehicle recharging point capital allowances
There will be a two-year 100% first year allowance for companies who install electric vehicle charge-points, introduced from today (November 23) until March 2019. That, said the Chancellor, would allow companies to deduct the cost of the charge-point from their pre-tax profits each year.
The Chancellor announced that fuel duty would be frozen in 2017 for the seventh successive year, saving the average car driver £130 a year and the average van driver £350.
He said it was a “tax cut” worth £850 million next year, and meant the current fuel duty freeze was the longest for 40 years.
Explaining why he was continuing the fuel duty freeze, Mr Hammond said: “The oil price has risen by more than 60% since January; and sterling has declined by 15% against the dollar.
That means significant pressure on prices at the pump here in Britain.”
Major additional investment in improving Britain’s road network and alleviating congestion has been announced with the creation of a £23 billion National Productivity Investment Fund.
The Chancellor said that investing in infrastructure and innovation was critical to improve long-term productivity and ensuring the UK’s economy was fit for the future.
The small print in the Autumn Statement documents highlighted that £2.6 billion would be spent to tackle congestion and ensure the UK’s transport networks were fit for the future. The spending plans include:
- £390 million on future transport technology, including driverless cars, renewable fuels and energy efficient transport. That will include: a £100 million investment in the testing infrastructure for driverless cars, and £150 million to provide at least 550 new electric and hydrogen buses, and reduce the emissions of 1,500 existing buses and support taxis to become zero emission.
- £80 million to install more charging points for ultra-low emission vehicles
- £1.1 billion to reduce congestion and upgrade local roads and public transport including £220 million to tackle road safety and congestion on Highways England roads
The Chancellor confirmed the government’s commitment to reduce the main rate of Corporation Tax to 17% by 2020. Corporation Tax rates, currently at 20%, will reduce to 19% in 2017/18. They will remain at that rate in 2018/19 and 2019/20, before being cut to 17% in 2020/21, as previously announced.
Insurance Premium Tax
Insurance Premium Tax will increase from the current 10% to 12% from June 1, 2017 impacting also on vehicle insurance and roadside assistance policies.
Whiplash insurance claims
The Chancellor confirmed the government’s commitment to legislate next year to end the compensation culture surrounding whiplash claims – a major area of insurance fraud – saving drivers an average of £40 on their annual premiums.
The Ministry of Justice is currently consulting on proposals which, it says, will reduce the unacceptably high number of whiplash claims and allow insurers to cut premiums. The government will bring forward supporting legislation in the Justice Bill and expects insurers to pass on savings, which it says are worth a total of £1 billion.