The Autumn Statement budget was announced last month, bringing about some fairly big changes to the automotive industry. In turn this will have an impact on the regular motorist. Our new post explores what this means for you.
Salary sacrifice schemes will be subject to tax
A salary sacrifice scheme is when an employee exchanges some of his or her salary for a non-cash benefit in kind, such as a gym membership, child care, mobile phones and company cars.
An advantage of this is that the ‘sacrifices’ are taxed less than a salary, or in some cases, not at all.
With the new budget, these salary sacrifices will be taxed as if they were a cash income. However, there are exemptions including pensions, childcare, cycle to work schemes and ultra-low emission cars.
The impact on company cars
The way company cars are taxed will change – these vehicles will be taxed based on whichever is higher – the salary sacrifice or cash allowance sum, or the benefit in kind rate.
This is done by either taxing the value of the car under income tax and National Insurance Contributions or by taking Company Car Tax rates, depending on which amount is greater.
According to the BVRLA, this will rather unjustly target lower emission cars the most because their BIK rates are much lower than their salary sacrifice or allowance. The exemption is that if you drive an ultra-low emission vehicle.
It is estimated that the proposed change will affect around 70,000 salary sacrifice members and up to 580,000 employees who currently benefit from a cash or car policy.
Unless your company car is an ultra-low emission vehicle, it could be subject to a considerable tax hike, but plans already set by April 2017 will be protected until April 2021.
Car tax bands
The government will introduce 15 car tax bandings from April 2020, including 11 for ultra low emission vehicles:
- zero emission cars will be taxed 2%
- cars emitting 1g/km and 50g/km will be taxed between 2-14%
- cars emitting 90g/km and more emissions will be taxed 37%
Insurance premium tax
Another rise in insurance premiums is expected to affect young drivers and those in London.
This premium tax will increase to 12% in June 2017 and according to the AA, will add about £10 a year to the average vehicle insurance premium. This means that those of you with higher insurance costs will have to pay a higher rate of insurance premium tax, such as young drivers and drivers in London.
This makes it the third insurance premium tax hike in the past 18 months. Back in 2010 it was only at a rate of 5%!
One of the few bits of good news that has come from the Autumn Statement is that fuel duty will be frozen for the seventh successive year, and it has been frozen at 57.95p per litre since 2011.
A sum of £1.1 billion will be invested into the transportation network over the next five years, which aims to relieve congestion and upgrade local roads. An additional £220 million has been allocated for tackling key pinch-points.
What are your thoughts on the Autumn Statement 2016? How do the changes affect you?