Budget 2010

The Chancellor of the Exchequer has delivered his 2010 Budget.  Key highlights include:

For our full summary click here 

VAT rate and IPT increase

From 4 January 2011:

• VAT rises from 17.5% to 20% 
• Higher rate of Insurance Premium Tax rises from 17.5% to 20% 
• Lower rate of Insurance Premium Tax rises from 5% to 6%

The BVRLA will shortly publish an industry specific fact sheet on the transitional arrangements for the VAT changes. In the meantime, HMRC can be accessed by clicking here.

BVRLA comment: This widely anticipated increase will accentuate the VAT benefits of leasing company cars, because companies purchasing cars cannot claim back any of the VAT on purchase where there is any element of private use. Backed up by our research which suggested that 70% of company car mileage is business-related, we recently called on HM Revenue and Customs to increase this 50% VAT recovery rate. With VAT due to rise to 20% from next January, this is now more relevant than ever.

The 20% VAT will affect car rental rates. The Chancellor announced support for the UK tourism industry in his emergency Budget, and we will be lobbying for a special VAT rate for leisure car rentals, in recognition of this sector’s vital part in the UK’s tourism infrastructure.

Corporation Tax

Main rate of corporation tax will be reduced from 28% to 27% from 1 April 2011. There will be further 1% reductions each year, leading to a 24% rate by 1 April 2014.

Small Business the small profits rate (SPR) of corporation tax (CT) will be 20% from 1 April 2011.

Writing Down Allowances (Capital allowances)

Writing-Down Allowances (WDAs) for new and unrelieved expenditure on plant and machinery will change as follows: 

• from 20% to 18% per annum for expenditure allocated to the main pool (this will affect expenditure on cars emitting 160 g/km or less CO2 and all commercial vehicles) 
• from 10% to 8% per annum for expenditure allocated to the special rate pool (this will affect expenditure on cars emitting more than 161g/km CO2)

The first measure will have effect for the calculation of WDAs for chargeable periods ending on or after 1 April 2012 for corporation tax and on or after 6 April 2012 for income tax.

BVRLA comment: The reduction in capital allowances may have a marginal impact on headline lease rates, which could be offset by the staged reductions in the rate of Corporation Tax. The reduced allowances will make leasing even more attractive as companies purchasing vehicles will have the administrative and financial burden of carrying these depreciating assets on their balance sheets.

Employment Tax

• the personal allowance for those aged under 65 will be increased by £1,000 to £7,475
• higher rate taxpayers will not benefit from the increase in the personal allowance
• the secondary threshold, which is the point at which employers start to pay Class 1 National Insurance Contributions (NICs), is to be increased by an extra £21 per week above indexation

These changes will have effect from 6 April 2011.

People setting up new businesses outside London, the South East and the east of England will be exempt from £5,000 of National Insurance payments per employee, for the first 10 workers hired in their first year of operation.

BVRLA comment: We don’t see why this incentive is limited to new businesses and couldn’t be made available to any employers creating a net increase in jobs.

Fuel duty

The current increases will remain as 1p in October 2010 and the final 0.76p in January 2011. Thereafter, the increase will be 1p per litre above inflation each year up to 2014.

Fair Fuel Stabiliser

The Office for Budget Responsibility is to undertake an assessment over the summer of the effect of oil price fluctuations on the public finances. Informed by this assessment, the Government will examine options for the design of a fair fuel stabiliser.

Reflecting the Coalition commitment to investigate measures to help with fuel costs in remote rural areas, the Government is considering the case for introducing a fuel duty discount in remote rural areas. This includes possible pilot schemes in Scotland.

BVRLA comment: We are disappointed that the government is still committed to staged increases in fuel duty this year and next and we will continue to lobby for an essential user rebate.

We were disappointed not to hear any further details of a potential lorry road user charge as an alternative way of taxing essential road freight movement.

Business Regulation

The Government plans to ensure review all regulation scheduled for introduction over the coming year. These regulations will not be implemented until they have been reviewed and re-agreed by the Reducing Regulation Committee.

The so called ‘sunset clauses’ on regulations will ensure that regulations will cease to be law after seven years unless Parliament has confirmed they are still necessary and proportionate.

Areas confirmed from the previous Budget

From 6 April 2010, businesses will be able to claim 100% first-year allowance (FYA) for the purchase of zero-carbon goods vehicles and it will be in place for five years. This will not be available for expenditure on leased assets. BVRLA will be lobbying for this to be changed given the role the sector will be playing in supporting the take up of greener vehicles.

Company Car and Van Tax (Benefit in Kind)

The Chancellor has confirmed in his emergency budget the following changes announced in April.

To access the company car tax fact sheet click here.
To access the company van tax fact sheet click here.
To access the company car fuel benefit charge fact sheet click here.

VED changes

The previously announced VED changes to Heavy Goods Vehicles (HGVs) will take effect from 1 April 2011. From this date, additional HGV VED rates will be introduced, based on weight and suspension type.

Other information