2016 Autumn Statement Summary
The loudest cheer in the House of Commons was reserved for Philip Hammond’s announcement that his first Autumn Statement will also be his last! The Chancellor hasn’t given up on the UK economy though, which will grow more this year than anticipated despite the result of June’s ‘Brexit’ referendum. Rather he’s abolishing the Autumn Statement; next year we can look forward to both the last Spring Budget and the first Autumn Budget.
Against a backdrop of reduced growth forecasts for 2017 and beyond, weakening tax receipts and increasing debt, what are the key tax and spending announcements the automotive industry should take notice of?
Following the conclusion of the recent consultations on salary sacrifice and the future taxation of ultra-low emission vehicles (‘ULEVs’), the whole industry has been waiting with bated breath for the Chancellor to announce the new policies and thereby end a prolonged period of uncertainty.
Following extensive lobbying from the automotive sector, the Chancellor announced that ULEVs only, cars with CO₂ emissions up to 75 g/km, will be added to the ‘white list’ of benefits exempted from the new legislation to be introduced in April 2017.
As requested by many lobbyists, grandfathering will be applied for cars so that any salary sacrifice arrangements in place prior to April 2017 will not be subject to the changes until April 2021.
Effectively, this means that for employees joining a salary sacrifice scheme after March 2017, the current tax and employer NIC benefits will be restricted to cars with CO₂ emissions of up to 75 g/km.
The government has implemented these changes in the face of criticism from the Office of Tax Simplification (‘OTS’) regarding the increased complexity of the new rules, and with a lack of clarity regarding the administration of the new rules and their application to cash alternatives the period of uncertainty will continue for a while longer.
Company car tax for ULEVs
In its consultation, HM Treasury acknowledged that retaining a framework based entirely on CO₂ emissions would preserve the simplicity and transparency of the current system. However, it has ploughed ahead with its proposal to differentiate ULEVs according to both their CO₂ emissions and zero emission range capability, which will, it says, incentivise manufacturers to improve battery technology and ensure consistency with the framework for the plug-in car grant.
The Autumn Statement confirmed that the new basis of company car tax will take effect from April 2020 with the appropriate percentages for ULEVs as follows:
- 0 g/km — 2% (down from 16% in 2019/20);
- 1–50 g/km — between 2% and 14% depending on zero emission range (down from 16% in 2019/20).
Although these new bandings may provide a greater incentive for manufacturers, representative bodies have argued they may actually discourage the take up of ULEVs until the new measures come in to effect, as the percentages are set to rise from 7% this year to 16% in 2019/20 before falling to as little as 2%.
Although it was announced that the appropriate percentage for cars with emissions of 90 g/km and above will rise by 1% up to the maximum of 37%, there has been no indication yet as to the percentages that will apply for cars with emissions between 51 and 89 g/km, nor the thresholds for zero emission range. Hence, despite calls for the government to provide clarity, the Autumn Statement has introduced confusion and complexity, with many concerned that the new measures will dampen enthusiasm for ULEVS until 2020 rather than encourage their take up.
Van and fuel benefit multipliers
The following increases to the multipliers were also confirmed in the Autumn Statement:
- van benefit charge to £3,230 (from £3,170);
- van benefit fuel charge to £610 (from £598)
- car fuel benefit multiplier to £22,600 (from £22,200).
Fuel duty has been frozen for the 7th successive year saving the average car driver £130 and the average van driver £350 per year, at a total cost to the Exchequer of £850 million in 2017/18.
100% first year allowances will be available from 23 November 2016 to 31 March 2019 to businesses that invest in electric vehicle charge-points.
Insurance Premium Tax (‘IPT’)
Although the last rise only came in to effect on 1 October 2016, IPT will increase again from 10% to 12% from 1 June 2017. By highlighting the difference between the rate of IPT and Value Added Tax (‘VAT’) in his speech, was the Chancellor signalling more rises in the future?
Vehicle Excise Duty (VED)
Despite lobbying from some representative bodies, the new VED rates for cars due to come in to effect from 1 April 2017 will be introduced as planned.
National Insurance Contributions (‘NIC’)
From April 2017 employees and employers will begin to pay NIC from the same earnings threshold of £157 per week.
In a letter to the OTS, because of the anticipated upheaval for employers and employees, the Chancellor said that he will not proceed with the proposal to collect NIC on a cumulative, annual basis, casting doubt on the future alignment of NIC and income tax. The Chancellor has though promised to consider proposals made by the OTS to replace employer’s NIC with an ‘employer’s levy’.
Strategic roads network
The government will invest an additional £220 million to the National Roads Fund to tackle traffic pinch-points.
As part of the measures to be introduced to improve UK productivity the Chancellor will set up a new £23 billion National Productivity Investment Fund (‘NPIF’) to be spent on innovation and infrastructure over the next five years. By 2020/21 the NPIF will invest £1.1 billion to relieve congestion and deliver local road and public transport upgrades.
Over the next 4 years the NPIF will invest a further £80 million for ULEV charging infrastructure, £150 million for low emission buses and taxis, and £100 million connected and autonomous vehicle testing infrastructure.