Budget 2017 & motor sector
Philip Hammond today delivered his first Autumn Budget and focused on Housing, Inequality and Fairness. Boosted by figures released this week that show that borrowing is likely to be less than original OBR forecasts, so is shrinking as a percentage of GDP the Chancellor pledged to give away money to invest to secure a bright future.
Areas that impact the Motor Sector include:
Vehicle Excise Duty (VED)
Even though there were wholesale changes to VED/road fund licence for new cars from April 2017, a new Vehicle Excise Duty (VED) supplement will apply to new diesel cars first registered
from 1 April 2018.
This will mean that their First-Year Rate will be calculated as if they were in the VED band above.
This will not apply to next-generation clean diesels – those which are certified as meeting emissions limits in real driving conditions, known as Real Driving Emissions Step 2 (RDE2) standards.
Steve Freeman, Partner and Head of Motor sector, said:
“There have been very few tax changes directly impacting on the motor retail sector announced by Philip Hammond today, and whilst this one is unlikely to have the impact that the major reforms from April 2017 had, it may influence some buyers to advance planned vehicle replacements. This may provide a small, but welcome boost to Dealers”.
An additional rise in the existing Company Car Tax diesel supplement from 3% to 4%, with effect from 6 April 2018 is being introduced.
This will also apply only to diesel cars which do not meet the Real Driving Emissions Step 2 (RDE2) standards.
Nigel Morris, Employment Tax Director, commented:
“It was heavily rumored that diesel cars would be targeted due to the bad publicity that they receive relating to air quality. It is disappointing that the introduction is only 5 months away and will impact existing vehicles, where drivers were unaware of this increased taxation when making their original choice”
Bringing forward to 1 April 2018 the planned switch in indexation from RPI to the main measure of inflation (currently CPI).
Nathan Sutcliffe, Tax Manager said:
“This will be welcome move for Motor Dealers who have substantial property portfolios and will benefit from a reduced future overhead increase. The impact of the proposed change is a reduction of taxation by £290m in 2018/19 compared to 2019/20.”
Corporate indexation allowance
To bring the UK in line with other major economies and broaden the tax base through removing relief for inflation that is not available elsewhere in the tax system, the corporate indexation allowance will be frozen from 1 January 2018.
Accordingly, no relief will be available for inflation accruing after this date in calculating chargeable gains made by companies.
Nathan Sutcliffe, Tax Manager, said:
“This will be an unwelcome move for Motor Dealers who have substantial property portfolios and will therefore be impacted on future property sales from an increased capital gain tax cost.”
National Living Wage
The National Living Wage is set to rise from £7.50 to £7.83 in April 2018, for those aged 25 and over.
Nigel Morris, Employment Tax Director, commented:
“Whilst this is good news for the low paid it does represent a 4.4% pay rise and means a nearly £600 a year pay increase for full-time workers. However, this ever-increasing burden across the whole wage bill could be very hard for some employers to continue to sustain”.
Other measures announced today included:
Abolishing SDLT altogether on the first £300k for first time buyers.
The government recommitted to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament.
From April 2018, the personal allowance will rise to £11,850 (£11,500) and the higher rate threshold to £46,350 (£45,000).
Nigel Morris, Employment Tax Director, said:
“This is some good news for employees and will help many households manage the impact of inflation and price rises on the high street.”
Class 4 NIC
The government reaffirmed that the main rate of Class 4 National Insurance contributions will increase from 9% to 10% in April 2018 and to 11% in April 2019 to reduce the gap in rates paid by the self-employed and employees. This will impact self-employed individuals and those self-employed via Limited Liability Partnership arrangements.
Nigel Morris, Employment Tax Director, expressed concern that these measures whilst a step by the Chancellor to address the £5bn a year difference in NIC between the employed and self-employed, may impact the genuinely self-employed who do not benefit from increased pensions and benefits.
The Government had already announced (8th November) that the introduction of the National Insurance Contributions (NICs) Bill in 2018 would take effect one year later, from April 2019. This impacts the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and sporting testimonials.
This is to allow time to engage with concerns that impact on the abolition of Class 2 NICs on self-employed individuals with low profits. The Government is committed to abolishing Class 2 NICs to simplify the system, but will take the time to ensure that there are no unintended consequences for the lowest paid.
VAT registration threshold
In response to the Office of Tax Simplification’s report ‘Value Added Tax: Routes to Simplification’, the government will consult on the design of the threshold, and in the meantime, will maintain it at the current level of £85,000 for two years from April 2018.
Glyn Edwards, VAT Director, welcomed the breathing space that such a consultation period will afford smaller businesses, but said “It is disappointing that this is still on the agenda, as UK Plc benefits greatly from the productivity of small and medium sized businesses and so any attempt to increase the burden on this sector is unwelcome.”
In addition to the measures above the government will also consult on the following:
Capital gains tax: Entrepreneurs’ Relief - relief after dilution of holdings - Spring 2018
Encouraging compliance by users of digital platforms - Spring 2018
Employment status discussion paper - 
Enterprise Investment Scheme fund - 2018