SME Fleets – What You Need To Know From The Autumn Budget

WITH the population of the UK still struggling to recover, personally and financially, from the pandemic and striving to put Covid-19 behind them, Chancellor, Rishi Sunak, delivered his second Budget of the year on 27 October 2021, writes Jeff Whitcombe, tax specialist at BCF Wessex. 

Acknowledging the scale of government debt, which is higher than it has been for 70 years, the Chancellor announced a strong economic forecast for the UK, which is now “expected to return to pre-Covid levels by 2022”, adding unemployment is set to be much lower than forecast and that wages had grown “in real terms” over the last 18 months. 

The Chancellor promised that the government will stimulate the economy with historic levels of investment in public services and continued support for business to drive the forecast economic growth, but would also continue to focus on its Net Zero Strategy as it strives to “build back greener”. 

Placing a particular emphasis on “levelling up”, so that people could “reach their full potential wherever they live”, the Chancellor sought to tackle the cost of living crisis, which has seen the cost of energy more than double and inflation rise sharply, by increasing the National Living Wage and reducing the Universal Credit income taper. 

But, among the raft of measures announced to rebuild the post pandemic economy, what was the impact for the fleet sector and SME businesses? 

Unsurprisingly, given this was the second Budget of 2021 there were very few direct measures, although the continued freeze in fuel duty and extension of the Annual Investment Allowance will be almost universally welcomed, as will the announcement of additional funding to encourage the transition to electric vehicles and the investment in infrastructure and roads.  

Summarised below are the most relevant tax and spending measures announced in this Autumn Budget, but would add that these must be considered in line with the measures announced in the Spring Budget, which, when added to the introduction of the Health and Social Care Levy tax rises announced in 2021, mean the UK will face its highest overall tax burden since the 1950s. 

Taxation

Income tax – rising on dividends

Although it was announced in the Spring Budget that UK income tax rates and thresholds will remain frozen until April 2026, the Chancellor confirmed that the rate of tax applied to dividend income will rise by 1.25% from April 2022 to ensure those with dividend income make a contribution toward the funding of health and social care. 

National Insurance Contributions (NIC)

NIC thresholds will increase in line with inflation from April 2022, although it should be borne in mind that the Upper Earnings Limit, the threshold at which employees begin to pay reduced rate NIC, and the Upper Profits Limit will remain at current levels in line with the freeze applied to the UK higher rate tax threshold. 

As announced on 07 September 2021, and recently approved by Parliament, the new Health and Social Care Levy will be added to both employee and employer Class 1 NIC, as well as Class 1A, Class 1B and Class 4 NIC from April 2022, increasing each of these rates by 1.25% for one year. 

Health and Social Care Levy (HSCL)

The new HSCL will be separated out from NIC and charged at a rate of 1.25% from April 2023. From that time the HSCL will also apply to the earnings of those working above the State Pension Age, and NIC rates will return to their 2021/22 levels. 

Van benefit charge rises

From 06 April 2022 the van benefit charge – or company van tax – will rise in line with inflation to £3,600 (from £3,500).

Fuel benefit charge goes up

With effect from 06 April 2022 the multipliers will rise in line with inflation, to:

• van benefit fuel multiplier – £688 (from £669); and
• car fuel benefit multiplier – £25,300 (from £24,600).

Drivers taking ‘free’ fuel should reconsider the benefit to them and whether it is costing more in tax than the cost of the fuel. In all likelihood, it is.

Fuel duty stays frozen

With pump prices at an eight year high, it was announced that fuel duty on petrol and diesel will be frozen again. This is the 12th consecutive year of the freeze, cumulatively saving the average UK car driver £1,900 per year.

Commenting on the decision to maintain the freeze on fuel duty, Iryna Kocharova, Head of Sustainability at the UK’s largest leasing firm Lex Autolease (pictured left), said:

“As momentum continues to shift away from petrol and diesel, an alternatively-fuelled future can’t happen overnight. The affordability of electric vehicles remains a key barrier towards adoption for many small businesses and private drivers, with an ICE vehicle remaining the only option for some.   

“With rising fuel prices against the backdrop of the ongoing pandemic recovery, a 12-year fuel duty freeze remains a sensible move; however, if the UK is serious about leading the EV charge, then sustained investment from policymakers which accelerates the UK’s electrification plans has to stay at the top of the agenda.”

Rises on Vehicle Excise Duty (VED) – except for EVs

From April 2022, VED for cars, vans and motorcycles will rise in line with inflation. 

This means that the first year rate for cars registered from 01 April 2017 will increase by up to £120, the standard rate will increase by £10 and the ‘expensive car’ supplement, which applies to cars with a list price exceeding £40,000, will increase by £20. However, zero emission cars continue to be exempt from VED, and the supplement, until April 2025.   

The standard rate of VED for cars registered before April 2017 will rise by up to £30.  

The annual VED for Euro 4 or Euro 5 vans is frozen, but will increase by up to £15 for all other vans. 

Heavy goods vehicle (HGV) VED has been frozen again for a further year until April 2023, and the HGV Levy will be suspended for another 12 months from 01 August 2022.

Annual Investment Allowance (AIA) – think about how you finance vans

The availability of the temporary enhanced AIA will be extended until April 2023, thereby encouraging businesses to bring forward capital investment .

Businesses may claim the AIA on both general and special rate plant and machinery and it is therefore an effective 100% allowance. Although it isn’t available for expenditure on cars, commercial vehicles, such as vans, should qualify for the AIA.

Certificate of conformity

The Chancellor announced that tax legislation will be amended to recognise a new GB certificate of conformity that will be introduced through a new permanent and comprehensive GB vehicle type approval scheme to be brought into effect at some point during 2022. These changes will also ensure that any figure representing a vehicle’s CO2 emissions will be disregarded unless it is derived from The Worldwide Harmonised Light vehicle Testing Procedure (WLTP).

Salary sacrifice saved as a tax effective car acquisition method

Although there has been a certain amount of nervousness within the fleet industry as to whether the government might change the Optional Remuneration Arrangements (OpRA) threshold, there was no announcement, meaning the legislation does not apply to cars with emissions of 75 g/km or less. 

This preserves the substantial income tax and NIC advantages associated with salary sacrifice cars, particularly zero emission cars, ensuring its resurgence in popularity. 

Net Zero Strategy: Build Back Greener

In a Budget presented to the House less than a week before COP26 takes place in Glasgow the government committed £6.1 billion to greener transport, supporting the policies and strategy set out in the Transport Decarbonisation Plan.

Incentives to increase the take up of electric vehicles

To support the uptake of electric vehicles an additional £620 million was announced, on top of the £1.9 billion committed last year, for public charging in residential areas and targeted plug-in vehicle grants.

Many expect this may signal the end of the plug-in car grant as we know it, but further detail will be provided later this year when the government publishes an EV infrastructure strategy document.

£817 million of the £1 billion Automotive Transformation Fund will be set aside to support the electrification of UK vehicles and related supply chains. The government also reiterated its commitment to end the sale of new petrol and diesel cars and vans from 2030 and committed to the introduction of a new zero emission mandate to be introduced from 2024 to encourage manufacturers to increase the percentage of zero emission vehicles they sell, while also confirming that all the government’s own car and van fleets will be zero emission by 2027. 

Other incentives

Offering a so called step change in green transport investment the government also announced:-

• £1.2 billion for greener bus transformation, including infrastructure improvements;
• £355 million to fund more zero-emission buses, with an additional £70 million for regional zero-emission buses and infrastructure in five specific areas of the UK;
• £2 billion for cycling and walking, including hundreds of miles of segregated bike lanes;
• £416 million for research and development of low and zero-emission transport technologies, including zero emission HGV technologies; and
• £180 million to kick-start the development of commercial-scale UK sustainable aviation fuel plants and a clearing house to test and certify new fuels.

Public spending on transport

With a continued emphasis on “levelling up” the Department for Transport, like every other government department, will receive a real terms spending increase which will see it awarded additional funding to “improve the journeys people make every day and enhance connectivity between our cities and regions” alongside “taking action to decarbonise the transport sector”

The Chancellor promised £59 billion to boost connectivity across all parts of the country, with rail enhancements, primarily in the Midlands and the North, and strategic road investment delivering over 60 upgrades across the country. The additional money will help fund the following projects:-

• £5.7 billion investment to fund sustainable transport in England’s city regions, including upgrading and extending tram networks in the West Midlands, Manchester and Sheffield;
• £2.6 billion investment to upgrade vital local roads, including the Isham, Bognor Regis and Chippenham Bypasses;
• £2.7 billion investment in local road maintenance to fill in millions of potholes, and fund the repair of dozens of bridges and resurfacing of thousands of miles of roads; and
• £12 million investment to reopen passenger services and stations in Hampshire and the South West, and a further £650,000 to fund feasibility studies to examine the benefits of reopening another 13 lines across the country that were previously closed as a result of the Beeching cuts.

Summing up, Debbie Fox, commercial director of epyx, a fleet technology provider, added:

Fleets are facing a number of difficult issues at the moment – new car supply, problems arising from Brexit, driver shortages, the process of electrification and more. There was little in the Budget to help them tackle these issues directly, with the possible exception of the fuel duty freeze, but the good news is the overall economic forecast we are hearing is significantly more positive than might have been imagined when we were deep in the Covid crisis.

 

I would broadly agree with the Chancellor when he says that growth is up, jobs are up and debt is down, but with the sizeable caveat that the points from which we started were in the depths of the pandemic when business activity was very low. Really, this is the most important news from this Budget – that following a massive, perhaps unprecedented economic shock, the situation is now relatively stable, although there remains potential for the problems we face to cause major, ongoing operational and cost difficulties.