Fleet News

Budget 2005: Nothing lost – nothing gained

CHANCELLOR of the Exchequer Gordon Brown delivered a Budget of pre-election sweeteners in the run-up to Labour’s bid for a third term in power.

With an election widely expected to be held on May 5, Brown’s statement delivered vote-winning measures such as child benefit rises, early learning help, renewed focus on secondary and vocational education and a number of new allowances and rebates for pensioners.

For Britain’s 32 million motorists, no news was good news, as Brown froze most taxes related to the industry. He announced a freeze on company car tax for 2007/2008, petrol duty only rises to take inflation into account and vehicle excise duty is frozen for most vehicles.

Brown said low inflation and low interest rates were key to continued British stability and growth, and he said he saw the country’s business future as a world-leading location for ‘science based, knowledge based, skills based industries’.

Adding that there was to be no rise in corporation and capital gains taxes, the insurance premium tax (IPT), or the climate change levy, Brown told Parliament he was not cutting small business support either and has earmarked £300m in local business-led regeneration.

The Conservatives immediately attacked the Budget speech as ‘The Bribes of March’. Leader Michael Howard said the Government had run out of solutions with its ‘vote now and pay later’ approach, and that ‘this is the last Budget this Chancellor of the Exchequer will ever deliver’. Overall, leaders in the fleet industry were pleased with the Budget, although there was some concern that it did not act decisively to tackle some of the key concerns in some areas, particularly in relation to whether the Government wanted to encourage company car use by tackling the growth of private car schemes.

Company car tax

FOR the second year running, the Chancellor of the Exchequer announced a freeze in benefit-in-kind tax.

Keeping his promise to inform the industry three years in advance of company car tax changes, he announced the rates for 2007/2008.

Under the emissions-based tax regime, drivers are taxed a percentage of the list price of their vehicles, according to the level of carbon dioxide emissions they produce.

From 2007/2008, vehicles emitting 140g/km will be charged at 15% of list price, the same as the 2006/2007 and the 2005/2006 rate.

The tax rises by 1% for every full 5g/km increase in CO2, up to a maximum of 35%. Diesel-engined cars that do not meet Euro IV emissions standards attract a 3% supplement on the petrol percentages, capped at 35%.

However, from April 2006, the waiver of the 3% supplement for Euro IV diesel will be withdrawn for all cars registered from January 1, 2006, so the minimum tax level for a diesel will be 18%, although the maximum will remain at 35%.

However, leading industry figures are demanding a clear message from Government about whether the 3% levy will be removed for Euro V vehicles when they become available.

Brown also announced that there would be significant changes to the way alternative fuels used by company car drivers are taxed.

The current system is detailed and complicated, with a range of different discounts available depending on the type of car and the type of fuel.

For 2006/07 the cost of converting cars to run on fuels such as LPG and CNG will be disregarded for bi-fuel gas and petrol cars converted but there will no longer be an additional 1% discount on the company car tax charge.

There will be a 2% discount on P11D price for bi-fuel gas and petrol cars manufactured or converted before type approval. There will be a 3% discount for hybrid electric cars and the 6% discount for electric-only cars will remain. Vehicle Excise Duty rates are frozen for the lowest four bands, covering the majority of new cars, while a £5 standard increase applies to all others.

VED is also being simplified into six bands, labelled A-F, rather than the current AAA to D, so it matches the new energy efficiency label.

In brief

  • A freeze in the threshold for the minimum percentage charge rate of company car tax at 140g per kilometre for 2007–08, and simplifications to the company car tax system
  • 3% diesel levy waiver scrapped from 2006
  • Simpler company car tax system for alternatively-fuelled cars
  • A freeze of the vehicle excise duty (VED) rates for the lowest four bands of graduated VED for cars, the majority of new cars, and the standard increase of £5 for the two most polluting bands from April 1

    Fuel: Inflation-only fuel rise hailed as good news for UK fleets

    AN inflation-only rise in fuel duty, deferred for six months, has been hailed as good news for the fleet industry – but the reasons behind the move are less positive. Volatile prices for crude oil could send pump prices rocketing, with some experts suggesting £1 a litre is not far away.

    The price of a barrel of oil hit a record $57 a barrel recently, but some city analysts suggest $70 a barrel is close.

    As a result, Brown announced that a Retail Price Index-based rise in fuel duty of 1.22p/litre for main road fuels will be postponed until September 1, 2005. This is equivalent to an increase of around 5.6p on the price of a gallon of petrol or diesel.

    For a modern diesel, achieving 48.7mpg, the rise equates to an additional £69 in fuel costs over 60,000 miles assuming a current price of £3.89/gallon for diesel.

    There was a significant increase for LPG as the Government introduces a level playing field for all alternative fuels, but it still remains about half the price of petrol or diesel.

    Brown also announced that the cost of receiving free fuel for private mileage from an employer would also remain the same.

    The company car fuel benefit calculation figure, used where company-funded fuel is provided for private use, is frozen at £14,400 for 2005/6.

    The tax payable on the figure is calculated in the same way as company car tax, so receiving free fuel is almost equivalent to having two company cars.

    In fact, only very few drivers will benefit, as they have to cover so many private miles to use enough fuel to offset the tax.

    For example, a driver of a Ford Focus LX 1.6 TDCi (90bhp) 5dr with CO2 emissions of 127g/km and Euro IV compliance qualifies in the 15% tax band in the 2005/6 tax year. He or she would pay tax of £475 if included in the 22% tax band.

    For a 22% taxpayer, £475 would buy 122 gallons of diesel, given a price of £3.89/gallon (85.5p/litre), meaning the driver has to cover 7,332 miles just to break even.

    In brief

  • Road fuel duties will rise in line with inflation by 1.22p per litre, deferred to September 1 in recognition of volatile oil markets
  • Planned duty differentials for biofuels and road fuel gases will continue until 2007/08
  • Fuel scale charge unchanged at £14,400
  • The 20 pence duty differential for biodiesel and bioethanol is guaranteed until at least 2007/8
  • Rise for gaseous fuels, such as LPG, as part of long-term move to create level playing field for all green fuels

    VANS: End of the road for car drivers who use double–cab pick-ups to lower BIK tax? A loophole behind the use of ‘double-cab’ pick-up trucks as company cars has been closed in the 2005 Budget with the confirmation of a 600% increase in benefit-in-kind taxation for some vehicles from 2007/8.

    For employees who are allowed unrestricted private use of their vans, the benefit in kind charge will remain at £500 (£350 for older vans) for 2005/6 and 2006/7.

    From April 6, 2007, the benefit-in-kind charge for employees who have unrestricted private use of vans will rise to £3,000, with a further charge of £500 for employer-provided ‘free’ fuel for private mileage.

    The two-year delay gives drivers time to switch out of their current vehicles in the natural fleet replacement cycle, as long as they are warned of the change by their fleet managers. However, the increased tax liability is still relatively low compared with some conventional cars of a similar price.

    Private car use on business: approved mileage rates put on hold

    WHILE the decision to freeze many taxes and rates in the Budget were welcome by the fleet industry, one area caused controversy.

    The Inland Revenue Approved Mileage Rates, the tax and NIC method of reimbursement has been frozen at 40p for the first 10,000 miles and 25p for any further mileage.

    This is one of the key factors in the growing popularity of alternative car schemes, as drivers receive a significant financial benefit for covering business miles in their private cars.

    The Association of Car Fleet Operators had called for a cut in the rates to encourage drivers back into company cars.

    ACFO director Stewart Whyte said: ‘However justifiable in personal terms, this attitude can do nothing to support Government initiatives or reduce vehicle emissions and car use.

    ‘The current structure encourages many drivers of their own vehicles to undertake unnecessary business mileage, simply because it is so lucrative. We will continue to press for a widespread review.’

    The decision to freeze rates also seems to go against the view of Transport Minister David Jamieson. At the Fleet News Industry conference last year, he said that the Government supported greater use of company cars, instead of opting out, because it was concerned that drivers opting out chose larger, older and more polluting vehicles.

    This was backed by ACFO, which carried out research showing 80% of opt-out drivers chose a ‘dirtier’ vehicle.

    However, leasing companies which also carried out research among their customers said that if the opt-out was part of a personal leasing scheme, controlled more effectively by the employer, drivers had to choose new cars, which were clean and efficient.

    Last year, the Inland Revenue announced it was carrying out a review of the company car tax system which would include a look at how mileage payments affected opting out, but sources suggest there is more work to be done before the findings are revealed.

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