Summer Budget: key announcements for the motor sector

Posted On July 17, 2015 By mhauk

On the 8th July George Osborne announced the first majority Conservative budget in nearly 20 years. This was indeed a ‘big budget’ and the changes it will prompt over the next few years are wide ranging. Within the announcements there were a number that are particularly relevant for the motor sector.

Key changes are:

Vehicle Excise Duty (VED)
A new banding has been introduced to protect the government’s revenue as the industry successfully reduces CO2 emissions in new vehicles.  There is a significant reform of VED for cars first registered from 1 April 2017 onwards with the first year varying according to the vehicle’s CO2 emissions. Cars with a list price above £40,000 will be subject to a £310-per-year supplement for the first five years in which the standard rate is paid.

Mike Hawes, chief executive of Society of Motor Manufacturers and Traders (SMMT) expressed his concerns over the new system. Mike warned that “the new regime will disincentivise take up of low-emission vehicles. New technologies such a plug-in hybrid…will not benefit from long-term VED incentive, threatening the ability of the UK automotive sector to meet ever stricter CO2 targets.” He also commented that the surcharge on premium cars risks undermining growth in UK manufacturing and exports as the tax on these vehicles will impact domestic demand.

Corporation tax
The government will cut the rate of corporation tax to 19% in 2017 and 18% in 2020 which will be welcomed by UK motor retailers. However the benefit of this may be outweighed by the change in the way dividends are taxed which will become a more expensive way for business owners to pay themselves.

Annual Investment Allowance (AIA)
A permanent level of the AIA will increase from £25,000 to £200,000 for all qualifying investment in plant and machinery made on or after 1st January 2016. This is a positive change but dealers still need to be careful with their timing of expenditure as there is a disadvantage to incurring a large amount of expenditure in December 2016 year end compared to 2015.

Business energy regimes
The Government will review the business energy efficiency tax landscape and will remove the Climate Change Levy (CCL) exemption for renewably sourced electricity.

Employment and Skills
A levy will be introduced on large UK employers to fund new apprenticeships in a bid to reach the government’s target of 3 million starts this Parliament. The levy will support all post-16 apprenticeships in England and it will provide funding that each employer can use to meet their individual needs.

The new living wage introduced will also mean many businesses will have to review their sales executive’s remuneration packages to ensure they are compliant.

MOT reform consultation
Options will be explored by the Government for requiring motorists with new cars to undergo the first MOT after four years rather than three, as part of the forthcoming Motoring Services Strategy.