Chancellor of the Exchequer George Osborne delivered his second Budget today (Wednesday, March 23, 2011) against a background of a shortage of public finance and inflation rising to 4.4% from 4% in January.

The Chancellor said he did not need to impose further pain – that had already been announced in previous Budgets with a number of measures due to come into place next month – and so focused on a Budget for growth.

He said: “Last year’s emergency Budget was about rescuing the nation’s finances, and paying for the mistakes of the past.  Today’s Budget is about reforming the nation’s economy, so that we have enduring growth and jobs in the future.  And it’s about doing what we can to help families with the cost of living and the high oil price.”

That opening statement signalled the final announcement in his 60-minute speech, which was a headline-grabbing 1p a litre cut in the rate of fuel duty from 6pm (Wednesday, March 23).

The other headline announcements impacting on the fleet and motor industry included:

  • No further increases in fuel duty until January 1, 2012
  • Increases in company car tax in 2013-14
  • An increase in the fuel benefit charge from April 6, 2011
  • A rise in Approved Mileage Allowance Payments rates from April 6, 2011
  • Vehicle Excise Duty rates on cars and vans to increase by the rate of inflation
  • A further £100 million being made available to repair the country’s potholed roads.

Fuel

The price of fuel reduced by 1p a litre at 6pm on Budget Day (Wednesday, March 23) as the Chancellor announced an immediate 1p a litre cut.

The move was in response to petrol and diesel prices being at record levels and was in place of the scheduled inflation plus 1p per litre rise that would have added almost 5p to forecourt prices.

Prior to the announcement, average UK fuel prices were133.59p for a litre of unleaded petrol and 140.16p for a litre of diesel – up from 116.1p and 116.9p a litre respectively a year ago.

Those figures mean that the price of a litre of unleaded petrol has increased by 15% in the past 12 months with the price of a litre of diesel increasing by 20%.

However, even with the Government able to claim that it is helping motorists, there is unlikely to be much respite from the upward trend.

Fuel prices have seemingly risen day-by-day to continually set new record levels, and amid the unrest in Libya experts have warned that prices will rise even higher if the country’s oil infrastructure is damaged by Allied air strikes.

Although Libya only accounts for 2% of the world’s oil supply, the strength of global demand means that the market is tight and the prolonged loss of Libyan oil will impact on the price of crude oil.

Motoring organisations have estimated that the Libyan conflict has already pushed up crude oil prices to close to $120 a barrel and there are fears that it could reach more than $140 – a price last seen in 2008.

However, the Government has also announced that:

  • There will be no further fuel duty increases until January 1, 2012 when a rise of 3.02p per litre is planned
  • A further fuel duty increase is scheduled for August 1, 2012.

In the meantime the Government has announced that it is to scrap the fuel duty escalator that was introduced in the 2009 Budget to increase duty by the rate of inflation plus 1p per litre each year until 2014-15.

In its place will come a fair fuel stabiliser. As part of the fair fuel stabiliser, when oil prices are high, fuel duty will increase by the rate of inflation only. However, if the oil price falls below a set trigger price, which has yet to be confirmed, on a sustainable basis the Government says it will increase duty by the rate of inflation plus 1p per litre annually.

The Government says that it believes a trigger price of $75 per barrel is appropriate. It will set a final trigger price and mechanism after consulting with the oil and gas companies and motoring groups.

Duty rates on biodiesel and bioethanoal have also been reduced by 1p per litre with similar rises to those for unleaded petrol and diesel planned for January 1, 2012. The duty rate changes similarly apply to natural gas and liquefied petroleum gas (LPG).

Company car tax

Company car benefit-in-kind tax thresholds will tighten by 5 g/km on April 6, 2013 with the Chancellor confirming already announced thresholds for the next two financial years (see chart below).

The further tightening of company car tax rates effectively mean that rates for vehicles with emissions of less than 95 g/km are frozen.

Meanwhile, previously announced changes in company car tax due to come into effect on April 6, 2011 will see:

  • The abolition of the £80,000 price cap on company car list prices for benefit-in-kind tax purposes. This will result in significant rises in both benefit-in-kind tax for drivers and employers’ Class 1A National Insurance Contributions.
  • The axing of company car tax discounts that currently apply to alternatively-fuelled vehicles (electric-petrol hybrids, ‘Flex-Fuel Vehicles’, bi-fuels, road fuel gas and bioethanol). The only discount that will remain is that for electric cars, which are exempt from benefit-in-kind tax for a further four years to April 5, 2015.
G/km of CO2% of list price
2010/112011/122012/132013/14
120120up to 99up to 9510
N/AN/A1009511
N/AN/A10510012
N/AN/A11010513
N/AN/A11511014
13012512011515
13513012512016
14013513012517
14514013513018
15014514013519
15515014514020
16015515014521
16516015515022
17016516015523
17517016516024
18017517016525
18518017517026
19018518017527
19519018518028
20019519018529
20520019519030
21020520019531
21521020520032
22021521020533
22522021521034
23022522021535
  • Add 3% for diesels up to a maximum of 35% (2012/13 unconfirmed)
  • Benefit-in-kind tax rates for zero emission cars will remain at 0%
  • Benefit-in-kind tax rates for ultra-low emission cars (up to 75 g/km) will remain at 5%.

Approved Mileage Allowance Payments

The tax-free mileage reimbursement rate for employees who use their own cars or vans for business mileage will increase to 45p from 40p for the first 10,000 miles from April 6, 2011.

However, the rate for mileage beyond 10,000 miles will remain at 25p per mile.

In addition to claiming AMAP rates, an allowance for passenger payments currently in place for employees at 5p per passenger per mile will be extended to volunteers.

Fuel benefit charge

Employees who are in receipt of company-funded fuel used privately will see their benefit-in-kind tax bills rise from April 6.

The Chancellor confirmed in the Budget that the fuel benefit charge multiplier will increase from £18,000 to £18,800, while the van fuel benefit charge – on which tax on ‘free’ van fuel is paid – will remain frozen at £550.

  • The van benefit-in-kind tax charge was also frozen for 2011/12 at £3,000.

Vehicle Excise Duty

On April 1, 2011, Vehicle Excise Duty rates will increase by the rate of inflation apart from VED on HGVs, which will be frozen in 2011-12.

Vehicle Excise Duty for cars registered on or after 1 March 2001

2011-12
VED

Band

CO2 emissions

g/km

2010-11

standard rate*

First year rate*Standard

rate*

AUp to 100000
B101-11020020
C111-12030030
D121-13090095
E131-140110115115
F141-150125130130
G151-165155165165
H166-175180265190
I176-185200315210
J186-200235445245
K**201-225245580260
L226-255425790445
MOver 2554351000460

*Alternative fuel discount 2010-11 onwards £10 all cars

** Includes cars emitting over 225 g/km registered before March 23, 2006

Vehicle Excise Duty for light goods vehicles registered on or after March 1, 2001: 2010-11 and 2011-12 rates

VED bandChange2010-11 rate2011-12 rate
Euro 5 discount rate*+£5£125£130
Standard rate+£10£200£210

*for Euro 5 compliant vans registered between January 1, 2009 and December 31, 2010

Vehicle Excise Duty for private and light goods vehicles registered before March 1, 2001 (pre-graduated VED):

VED bandChange2010-11 rate2011-12 rate
Up to 1549cc+£5£125£130
Over 1549cc+£10£205£215

Road maintenance

The Government had already announced a £100 million fund to help local authorities repair Britain’s potholes roads. In the Budget the Chancellor announced a further £100 million would be made available.

National Insurance rate rises

Among other measures already announced but reconfirmed by the Chancellor was the 1% rise in National Insurance rates for employees and employers from April 6.

That means that employees will pay 12% on earnings (+ a further 2% on weekly earnings above the upper earning limit of £817). Employers will see their National Insurance contributions rise from 12.8% to 13.8% including those paid on benefits-in-kind such as company cars and company-funded fuel used privately.

While fuel prices and the debate over the April 1 fuel duty increase has grabbed the national headlines, businesses face increases in Class 1A National Insurance contributions as a result of the April 6 rise in rates from 12.8% to 13.8%.

Although a 0.5% increase from April this year was announced in the 2008 Pre-Budget Report by the previous Labour administration with a further 0.5% increase announced in the 2009 Pre-Budget Report – all of which was confirmed by the Chancellor in his emergency Budget last June – there is a widespread belief that some businesses may not have appreciated the full impact of the rises.

Best practice advice to limit the impact of the NIC rise is to encourage employees to take to the wheel of less polluting vehicles.

Top tips for tackling the rise in NICs also include:

  • Highlighting the benefit-in-kind tax savings to employees of choosing a greener vehicle
  • Factoring NIC costs into the company’s fleet policy to ensure the whole life cost of each vehicle choice is clearly understood and financially accounted for
  • Consider introducing NIC lowering schemes such as salary sacrifice for company cars.

Meanwhile, the Office of Tax Simplification in a report published earlier this month called for the merger of income tax and National Insurance Contributions. This would effectively take the marginal rate of tax to 32% for lower ratepayers and 52% for higher ratepayers based on rates applicable in 2011/12.

In relation to employee benefits and expenses the report, called ‘Review of Tax Reliefs’, argues the case for the long-term alignment of the treatment of employee benefits, with shorter term aims of simplifying many minor benefits with a de minimis limit of £100/£500, or amending the current £8,500 salary threshold to which tax applies.

What is not clear from the report is the future tax treatment of company cars and company-provided fuel, which is linked to income tax thresholds.

Generally where benefits are provided by an employer to its employees, the benefit is subject to income tax on the employee, and Class 1A NICs on the employer as in the case of company cars and vans and company-provided fuel for private use.

In responding to the report, the Chancellor said that the Government would consult on merging the operation of income tax and National Insurance. However, he warned: “This huge task will therefore require a great deal of consultation and take a number of years to complete.”