The 2008 Budget contained little in the way of surprises for the British motorist. The planned 2 pence per litre fuel duty rise has been postponed until October, a new ‘showroom tax’ will be introduced in 2010 in the form of a £950 first year rate of VED, while all VED (road tax) bands will be re-organised in 2009, including the creation of a new Band M.
Vehicle Excise Duty
The King Review found that that a typical driver can reduce their CO2 emissions by 25 per cent by choosing the most efficient vehicle in their preferred class. In addition, the Review concludes that a longer-term target of reducing average new car CO2 emissions to 100g/km by 2020 is achievable. In order to support this target, and further strengthen the environmental incentive to develop and purchase fuel-efficient cars, Budget 2008 announces reform of the Vehicle Excise Duty (VED) structure. From 2009, VED will be restructured so that people gain financially by choosing the greenest cars. From 2010, there will be a new higher first year rate to influence purchasing choices.
- six new VED bands from 2009-10 – including a new top band (band M) for most polluting cars that emit more than 255g CO2/km;
- reducing the standard rate, in 2009-10, for all new and existing cars that emit 150g of CO2/km or less; and increasing the rate on the most polluting cars to £425;
- from 2010-11, extending the zero rate of VED, during first year of ownership, to all new cars that emit 130g CO2/km or less;
- holding the first year rate for all new cars that emit between 131 to 160g CO2/km equal to the standard rate in 2010-11;
- for the most polluting cars a first year rate of £950 in 2010-11;
As a result of these changes, the Government believes the majority of motorists will be better or no worse off in 2009.
Taxation of business travel
In addition to VED reform, Budget 2008 announces that Government will further promote the take up of cleaner cars through reforms to the taxation of business travel.
Replacing the existing capital allowance treatment for business cars with an emissions based approach
With effect from 1 April 2009 for corporation tax purposes (6 April 2009 for income tax) the capital allowance treatment of all cars will be reformed. Expenditure on cars with CO2 emissions above 160g/km will attract 10 per cent Writing Down Allowance (WDA) and expenditure on cars with CO2 emissions of 160g/km or below will attract 20 per cent WDA. Subject to State aid approval, cars leased to those in receipt of certain disability allowances will be placed in the 20 per cent main pool, regardless of their CO2 performance.
The rules which disallow a proportion of car lease rental payments will be reformed in line with the new capital allowances rules. The new disallowance will be 15 per cent of the relevant payments, applied to cars dealt with in the 10 per cent special rate pool. The Government is considering the option of applying the disallowance only to the final business user in a chain of leases.
In addition to this:
- the 100 per cent first year allowances (FYA) for the cleanest cars will be extended from 31 March 2008 to 31 March 2013 and the qualifying CO2 emissions threshold will be reduced to 110g/km;
- the 100 per cent FYA for gas re-fuelling infrastructure investment will also be extended from 31 March 2008 to 31 March 2013, and its scope expanded to include biogas infrastructure;
- company car tax rates will be increased on all but the cleanest cars emitting less than 135g CO2/km or less in 2010-11;
- the incentive to drive fewer miles will be strengthened by increasing the fuel benefit charge at least in line with the Retail Prices Index from April 2009; and
- tax-free mileage allowances (AMAPs) rates and thresholds will be maintained at current levels.
Fuel Duty Rates
The Government’s policy is that fuel duty rates should rise each year at least in line with inflation as the UK seeks to reduce polluting emissions and fund public services. Budget 2008 therefore confirms that main road fuel duty rates will rise by 1.84 pence per litre on 1 April 2009, and announces that rates will then also increase by 0.5 pence per litre above indexation on 1 April 2010.
Budget 2008 also announces that the planned fuel duty increase of 2 pence per litre in April 2008 will now take place on 1 October 2008. The Government can also confirm that rebated oils duty increases will also be deferred until 1 October 2008, when they will rise in proportion to main road fuel duties. These rates will also rise by the same proportion as main road fuel duties in the subsequent two years.