2024 Spring Budget Summary
The Hunt for Red October – with an autumn election looking increasingly likely, has the Chancellor spiked Labour’s guns?!
Well, by reforming the taxation of ‘non-doms’, and then using the extra revenue to fund tax cuts for working families, including a further reduction of National Insurance Contributions, the Chancellor certainly stole Labour’s thunder, which has long advocated reform of ‘non-dom’ taxation to generate additional funds for the National Health Service.
More generally, in his “Budget for Long Term Growth”, the Chancellor outlined a series of measures he said were designed to deliver more investment, more jobs and better public services; but which of those measures affect the automotive sector and fleet industry?
National Insurance
On 6 January 2024 the main rate of Class 1 NIC paid by employees was reduced by 2% delivering a monthly saving of around £37.50 to the average employee’s net pay. In a widely rumoured announcement, the Chancellor confirmed that a further reduction of 2% will come into effect on 6 April 2024. The combined reduction from 12% to 8% in just 3 months, will deliver an annual saving of around £900 to the average employee.
Many in the fleet industry will immediately think about the impact on salary sacrifice, but the reduction to the savings available for employees throughout the UK with a salary below £50,271, will be minimal compared to their total NIC savings as a result of this announcement.
And let’s not forget that this measure will not affect the salary sacrifice savings generated by UK resident additional or higher rate taxpayers, or Scottish resident top, advanced, and higher rate (with a salary above £50,271) taxpayers, whose salary sacrifice savings will continue to be based on the 2% rate of NIC .
Corporation tax relief — Full expensing
Full expensing offers enhanced capital allowances for qualifying plant and machinery; originally intended to be available for just 3 years the relief was made permanent in the 2023 Autumn Statement.
In the 2024 Spring Budget the Chancellor announced that draft legislation extending full expensing to assets bought to lease will shortly be published for consultation, with a view the tax relief being made available when fiscal conditions allow.
Commenting on this announcement, Gerry Keaney, BVRLA Chief Executive said, “Today’s commitment to extend full expensing to the rental and leasing sectors is a monumental step forward to rectify an historic injustice. The BVRLA has been an active voice in achieving this change and welcomes the opportunity to engage further in delivering this long overdue alignment in tax policy.”
Under full expensing assets that qualify as main rate expenditure, such as vans and lorries, will qualify for a 100% first year allowance, albeit a 100% balancing charge must be recognised on disposal, effectively adding the sales proceeds to taxable profits.
At present, since cars are not eligible for full expensing and the Chancellor didn’t clarify whether the proposed legislation would include cars or would still be restricted to commercial vehicles, the leasing industry will be eagerly awaiting publication of the draft legislation and whether zero emission cars might be included.
Fuel duty
In a move welcomed by leading industry bodies, the temporary 5ppl fuel duty cut introduced in 2022 has been extended, and fuel duty frozen for another 12 months, extending the freeze to a 14th year.
In addition, let’s not forget the raft of measures coming into effect in April 2024 announced during the 2023 Autumn Statement and the Scottish Budget.
National Minimum Wage (“NMW”)
The NMW is to be uplifted significantly to £11.44 per hour from 1 April 2024; a rise from £18,964 per annum to £20,800 per annum for someone working 35 hours per week or circa £21,674 to £23,800 for someone working 40 hours per week.
Whilst generally being good news for the lower paid, it could affect the ability of some employees to participate in salary sacrifice schemes.
Scottish rates of income tax
A range of important income tax changes come into effect from 6 April 2024, as outlined below:
- the thresholds for the Starter, Basic and Intermediate rate income tax bands will be increased but the Higher and Top rate thresholds will be frozen;
- a new Advanced rate of income tax, set at 45%, will be introduced for those earning between £75,000 and £125,140; and
- the Top rate of income tax, which applies to those earning more than £125,140, will rise to 48%.
Once these changes come into force the earned income of those living in Scotland will be subject to 6 rates of income tax, ranging from 19% to 48%, as well as an effective rate of 67½% for those earning between £100,000 and £125,140.
Van benefit charge/Car and van fuel benefit charges
Ordinarily these are updated each year in line with inflation, but will be frozen in 2024/25 at the current rates.
Vehicle Excise Duty (“VED”)
From 1 April 2024 VED for cars, vans and motorcycles will be uprated in line with inflation.
But to support the haulage industry VED for heavy goods vehicles (“HGVs”) and the HGV levy will be frozen at the current rates in 2024/25.
Conclusion
The proposed publication of draft legislation for full expensing of assets bought to lease has been welcomed by those working in the leasing industry. But with the devil being in the detail the new legislation will need to be read carefully to find out whether leasing companies will finally be able to claim enhanced capital allowances on cars or, despite the BVRLA’s longstanding campaign for change, full expensing will be continue to be restricted to commercial vehicles only.
The further reduction of the main rate of NIC for employees will diminish the savings available from salary sacrifice, but with evidence suggesting that the majority of those choosing salary sacrifice pay tax at higher rates it’s anticipated this measure could have limited impact
Staying with salary sacrifice, no change to the optional remuneration arrangement threshold of 75 g/km, means salary sacrifice for ultra-low emission vehicles continues to be supported by the government. But there is disappointment in many quarters that the BiK percentages to apply beyond 5 April 2028 have not been announced, and that the campaigns to reduce VAT on public charging and to reverse the proposed application of VED, including the expensive car supplement, to zero-emission cars, continue to be ignored.
Addressing these omissions, Gerry Keaney, BVRLA Chief Executive said, “At a critical time for the transition to zero-emission vehicles, no news is bad news. Today we heard nothing on charging, VED, Benefit in Kind, VAT on public charging, grants for electric vans, or a consumer education campaign. The Chancellor is leaving our sector in limbo,” adding “The Government needs to be braver in unlocking the billions of pounds in zero emission investments required across the whole road transport sector, from fleets, small businesses and private motorists.”
Meanwhile Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT), says noted there was "little to help consumer demand", labelling the Budget a "missed opportunity" to deliver fairer tax for a fair transition.
“Reducing VAT on new EVs, revising vehicle taxation to promote rather than punish going electric, and an end to the VAT ‘pavement penalty’ on public charging would have energised the market. With both Government and industry having statutory requirements to deliver net zero, more still needs to be done to help consumers make the switch.”