News - 2007 Archive
Budget Summary - March 07
Budget 2007 – what it means for fleets
Chancellor of the Exchequer Gordon Brown held his 11th Budget yesterday (Wednesday), 21st March 2007 and below we outline the key measures impacting on the fleet and motor industry.
Top rate of VED to reach £400: petrol and diesel have same rates
Vehicle Excise Duty on
From today (Thursday 22 March) vehicles in Band G - the top rate of VED will be subject to a £300 tax rate - which will rise to £400 from March 2008.
Simultaneously, the Chancellor announced that VED rates for vehicles in Band B would fall to £35 as he used the fiscal regime to further encourage the uptake of low emission vehicles.
In announcing major changes to rates within the graduated VED system, the Chancellor abolished the differential between petrol and diesel-engined cars. The change means a VED rise for petrol cars, which will now be charged the same as diesel-engined models.
He justified the move saying that the differential in nitrogen oxides and particulate matter emissions for new cars was expected to fall close to zero once Euro5 and Euro6 emissions standards became mandatory.
In a move away from the usual annual Budget VED announcement the Government said it was announcing VED rates for this year and the next two years to 'further sharpen environmental signals to motorists to purchase more fuel efficient vehicles'. In April 2008 and 2009 VED rate changes will come into effect on 1st April each year.
The Society of Motor Manufacturers and Traders immediately estimated the VED changes would provide a Treasury bonanza amounting to £44.5m
The trade association said that 176,141 new cars were sold in 2006 with emissions in the current Band G rate. Of these 90,302 (51%) were 4x4s. That means that other cars to be hit by the Budget tax hike include: Vauxhall Zafira (2.0 litre petrol), Renault Espace (2.0 litre petrol), Peugeot 407 estate (2.2 litre petrol), Honda Accord estate (2.4 litre petrol) and Ford Mondeo estate (2.0 litre petrol), said the SMMT.
However, contrary to speculation used car experts at CAP Motor Research said the VED rise would not result in a 4x4 residual value meltdown.
CAP Forecast Manager for passenger cars, Jeff Knight said: “Although this Budget is likely to provoke speculation about 4x4 values meltdown, an increase to £300 in the Road Fund License, rising to £400 next year, is a small sum for those who are prepared to pay a retail price of, for example, around £26,500 for a three year old BMW X5."
Mr Knight does, however, predict that older vehicles will be affected by the increase. He added: “People who aspire to the 4x4 lifestyle statement and are on the borderline of affording an older example are likely to think twice about incurring a Road Fund License charge of £400 for cars emitting 225 or more g/km of CO2 from April next year.
“The rest of the target market for large off-roaders are highly unlikely to force prices down by steering clear of higher Road Fund License costs unless it is increased by a much higher proportion than Gordon Brown has announced."
The charts below show the new VED rates
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*For new cars registered from March 23, 2006
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ECO schemes: the future remains unclear
The future of employee car ownership (ECO) schemes remains uncertain as the Government continues to decide their future.
The outcome of a 12-month review of ECO schemes was expected to be announced in the Budget, but the Chancellor has now said he will consider the case for changing the structure of tax-free Approved Mileage Allowance Payments (AMAPs), which are invariably used in calculating the financial viability of company car alternative schemes.
The current tax-free mileage rates are 40p for the first 10,000 business miles and 25p thereafter.
In announcing the review, HM Revenue & Customs (HMRC) said that between 2001 and 2005 the number of company cars on the road dropped from 1.6 million to 1.2 million following the move to a CO2-based benefit-in-kind tax system.
The take-up of ECOs was given in the report as one of the reasons for the decline in the company car population with HMRC saying: “In the light of findings from the company car tax evaluation that show a rise in the number of employee car ownership schemes, HMRC will review the taxation on ECOs and benefits employees derive from them with a view to possible changes."
Following extensive discussions with business last summer and in January that demonstrated, said the Treasury 'there are a number of different ECO schemes, and that there is a noticeable interaction between the tax treatment of ECO, tax-free mileage allowances and rates of company car tax, which may have contributed to the popularity of ECOs. Furthermore, the review has suggested that the more structured ECO schemes make extensive use of AMAPs to reduce their tax and National Insurance liabilities, which may provide a potential incentive to drive a greater number of business miles'.
As a result, the Treasury announced in the Budget small print: “Ahead of the Pre-Budget Report [in December], the Government will consider the case for changing the structure of AMAPs to align the tax/NICs treatment and to ensure that rates and thresholds are set at an appropriate level to promote environmentally friendly business travel."
That statement immediately led to speculation that AMAP rates would be linked to vehicle CO2 emissions with drivers who choose low emission vehicles benefiting from higher mileage rates.
However, while the future of ECO schemes remains uncertain there is no indication, at the moment, that they will be closed down.
But, in potentially realigning AMAP rates the Treasury must bear in mind that many employees not involved in ECO schemes but using their own cars on work-related journeys are reimbursed using the same figures. They include district nurses and council workers.
Company car tax thresholds frozen
Company car tax rates and thresholds will be frozen for 2009-10 at the level already set for 2008-09, the Chancellor announced in the Budget (see chart below).
In a bid to encourage the uptake of company cars capable of running on E85 (high blends of biofuel) - so-called 'Flex-Fuel Vehicles' currently available from Ford and Saab - a 2% company car tax discount will be introduced from April 2008.
That Budget measure is in addition to the already announced new lower 10% band for company cars with CO2 emissions of 120 g/km or less, which comes in to effect at the same time
G/km of CO2 % of list price
2006/07 2007/08 2008/09 2009/10
140 140 135 135 15
145 145 140 140 16
150 150 145 145 17
155 155 150 150 18
160 160 155 155 19
165 165 160 160 20
170 170 165 165 21
175 175 170 170 22
180 180 175 175 23
185 185 180 180 24
190 190 185 185 25
195 195 190 190 26
200 200 195 195 27
205 205 200 200 28
210 210 205 205 29
215 215 210 210 30
220 220 215 215 31
225 225 220 220 32
230 230 225 225 33
235 235 230 230 34
240 240 235 235 35
- Since April 2006, the waiver of the 3% supplement for diesel cars meeting Euro4 emission standards has been withdrawn for all cars registered from 1st January 2006.
- Discounts for alternatively-fuelled vehicles that have applied since April 2006 are:
- Cost of conversion disregarded for bi-fuel gas and petrol cars after type approval, no additional percentage discount.
- 2% discount for bi-fuel gas and petrol cars manufactured or converted before type approval
- 3% discount for hybrid electric and petrol cars
- 6% discount for electric-only cars.
Capital allowances: further consultation
The Government is to consult for the third time in two years on changes to the rules governing capital allowances on cars used for business which includes amendments to the lease rental restriction on vehicles costing more than £12,000.
Like the ECO scheme review, it had been expected that the new rules on capital allowances that business receive on their cars would have been announced in the Budget.
However, the rules, which affect fleets that both lease vehicles and buy their cars outright, will now be subject to a further consultation with the Government putting forward what it calls 'preferred options' for both capital allowances and the rental disallowance on cars costing more than £12,000.
The new consultation runs until 16th May and details are contained in the document 'Modernising tax relief for business expenditure on cars', which can be accessed at http://www.hm-treasury.gov.uk/budget/budget_07/documents/bud_bud07_cars.cfm
The aim of the Government in making the changes is to encourage the increased take-up of low emission vehicles and to reduce compliance costs for business
The Government is proposing that:
- The existing 100% first year allowances are retained for cars with CO2 emissions up to 120 g/km
- Allowances for cars with CO2 emissions between 121 g/km and 165 g/km are pooled
- A new pool, with a lower writing down allowance for cars with CO2 emissions above 165 g/km
In terms of the lease rental restriction the Government's preferred option is to:
- Abolish any lease rental for all cars with CO2 emissions up to 165 g/km, permitting the full allowance of leasing payments against the profits of businesses leasing those cars.
- Apply a uniformed fixed percentage disallowance on all the leasing payments that businesses can offset against profits for all cars with emissions above 165 g/km.
In the new consultation process the Government wants to talk to the fleet industry about compliance time and costs savings in relation to identifying, tracking, computing and/or checking business expenditure.
It also wants to discuss the specific treatment of diesel cars, whether and how to include cars that are currently exempt from capital allowance restrictions, and the treatment of expenditure incurred by the self-employed on cars used partly for business.
Fuel duty rates to rise
Fuel duty on both petrol and diesel will increase by 2p per litre from 1st October 2007 with further increases in 2008-09 and 2009-10 of 2p per litre and 1.84p per litre respectively also announced by the Chancellor.
The fuel duty rate rises also apply to biodiesel and bioethanol, while the differential between compressed natural gas with main fuel duty rates is maintained but the differential with LPG will be reduced by a further 1p a litre.
The Chancellor also announced that the 20p per litre duty differential between biofuels and petrol and diesel would be extended to 2009-10.
Fuel duty rates from 1st October 2007 are:
Pence per litre (unless stated) |
Old duty rate |
Change |
New duty rate |
|
Ultra-low sulphur petrol/diesel |
48.35p |
+2p |
50.35p |
|
Sulphur-free petrol/diesel |
48.35p |
+ 2p |
50.35p |
|
Biodiesel |
28.35p |
+2p |
30.35p |
|
Bioethanol |
28.35p |
+ 2p |
30.35p |
|
Liquefied petroleum gas used as road fuel |
12.21p per kg |
+ 4.28p per kg |
16.49p per kg |
|
Natural gas used as road fuel |
10.81 per kg |
+ 2.89p per kg |
13.70p per kg |
|
Rebated gas oil (red diesel) |
7.69p |
+ 2p |
9.69p |
|
Fuel Oil |
7.29p |
+ 2p |
9.29p |
VAT fuel scale charges switch to CO2 rating
The existing VAT fuel scale charge, which is based on the engine size and fuel type of a car, will be replaced by a fuel scale charge based solely on the CO2 rating of a car.
The new tables for one month, three-month and 12-month VAT periods can be accessed at http://www.hmrc.gov.uk/budget2007/bn55.pdf and mirror that used for company car benefit-in-tax purposes with 21 bands with 5g/km increments.
The changes come in to effect on 1st May 2007 and businesses must use the new scales from the start of their first accounting period beginning on or after this date.
Apart from the change to a CO2 basis, the system will operate in exactly the same way as the existing VAT fuel scale charge.
The new system, says HM Revenue & Customs, will determine the fuel scale charge by CO2 rating alone and there will be no adjustments for fuel type - although for a bi-fuel vehicle the lower of the two CO2 figures should be used. The exception is for vehicles too old to have an official CO2 rating; these businesses will be assigned a set band in the new system based on engine capacity alone.
In keeping with the existing fuel scale charge, the CO2-based system will be subject to an annual review to ensure that the charge reflects changes in fuel prices.
The Chancellor also announced….
- The company car fuel benefit charge multiplier will remain frozen at £14,400 for 2007-08
- A review to examine the vehicle and fuel technologies which over the next 25 years could help 'decarbonise' road transport.
- That the Government will consider the case for incentivising the early uptake of Euro5 and Euro6 technology through company car tax and other fiscal instruments.
…and finally: Van tax to rise from 6th April
Employees using vans provided by their employers for personal purposes could pay up to £1,260 in extra tax every year from 6th April when changes in the rules on taxable benefits take effect..
Under the current rules where private use is made of a van provided by an employer the taxable benefit in kind is £500 (£350 for vehicles more than four years old). From 6th April the taxable benefit for all vans will be £3,000, plus an additional £500 of taxable benefit if fuel is also provided by the employer.
This could mean that employees paying tax at the 22% rate will see the tax they pay for the benefit of having vans and fuel going up from £77 to £770 for an older van and from £110 to £770 for vans under four years old. Employees paying tax at the 40% tax rate will see their tax go up from £140 to £1,400 for older vans, and from £200 to £1,400 for newer vans (including fuel benefit).
In addition, employers' Class 1A National Insurance contributions will also soar.
While companies operating van fleets have had three years warning of the change in rules there is a widespread feeling that some businesses may not have revised their operating schedules to ensure drivers do not face the increased tax burden.