Budget 2014 Its impact on your fleet

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1 Budget 2014 Its impact on your fleet This year s Budget, presented by the Chancellor on Wednesday 19 March 2014, was a Budget for building a resilient economy, with the objective of supporting businesses by laying the foundations for sustainable economic growth. There are a number of significant changes which have been announced in George Osborne s Budget, including: The Annual Investment Allowance has been extended to the end of 2015 and the limit has been increased to 500,000 per annum Further support for motorists through the cancellation of the fuel duty increase that was planned for 1 September 2014 From April 2017, there will be a significant increase between the company car tax bands for Ultra Low Emission Vehicles (ULEVs). For cars with CO 2 emissions up to 50g/km, the company car benefit charge in 2017/18 will be 9% instead of 10% as previously announced but then increases to 13% in 2018/19. For cars with CO 2 emissions between 51 and 75g/km, the company car benefit charge in 2018/19 increases from 13% to 16% From April 2017 onwards, the appropriate percentage of list price subject to tax will increase by 2% for cars with CO 2 emissions greater than 75g/km to a maximum of 37% what s changed Company car tax Fuel duty Annual Investment Allowance VAT fuel scale charge Vehicle Exices Duty (VED) What was previously announced Corporation Tax Fuel Benefit Charge (FBC) Interest free loans Employer s National Insurance (NI) for under-21s Company van taxation Van fuel benefit charge Electric vehicles Payments for private use of a company car or van Company car benefit Advisory fuel rates Given the significant increases to company car benefit in kind taxation, this budget highlights the need to ensure that car policies are future proofed and consider the whole life cost of the vehicle over the term. There is also a requirement for companies to have flexibility in funding of company vehicles. 1 a lex autolease fact sheet budget 2014

2 what s changed? Company Car Tax (CCT) As previously announced, from April 2015 the five year exemption for low CO 2 emission vehicles will come to an end. Consequently, there will be a significant increase between the company car tax bands for Ultra Low Emission Vehicles (ULEVs). For cars with CO 2 emissions up to 50g/km, the company car benefit charge will be 5% in 2015/16, 7% in 2016/17, 9% in 2017/18, instead of the 10% previously announced, and will increase to 13% in 2018/19. The appropriate percentage of the list price subject to tax for the g/km CO 2 band will be 9% in 2015/16, 11% in 2016/17, 13% in 2017/18, and 16% in 2018/19. From April 2017 onwards, the appropriate percentage of list price subject to tax will increase by 2% for cars emitting CO 2 emissions greater than 75 g/km to a maximum of 37%. Budget 2013 publicised that in future years, CCT rates will be announced three years in advance. The Government will review incentives for ULEVs in light of market developments at the 2016 Budget. Company car tax rates from 2014/15 will see the appropriate percentage of list price subject to tax reaching a maximum of 35%, and reaching a maximum of 37% in 2015/16 onwards. As previously announced, from 2016 the Government will remove the 3% diesel supplement differential so that diesel cars will be subject to the same level of tax as petrol cars. The changes in company car tax thresholds continue to encourage low CO 2 emission company cars, which generally correspond with better fuel performance figures. Given the significant increases to company car benefit in kind taxation rates, employers need to ensure that their car policies are future proofed and consider the whole life cost of vehicles over the term, as these changes could lead to significant costs otherwise arising. In addition, in light of these changes, employers with salary sacrifice schemes need to consider the structure, policy and how savings are shared with employees. On the other hand, for employers with Employee Car Ownership Schemes (ECOS), this increase in driver contribution, where contributions are benefit in kind based, could however have the effect of making ECOS more attractive. Consequently, there is an opportunity to review the mix of cars which are funded in blended contract hire and ECOS arrangements. CO 2 emissions Taxable percentage of list price (g/km) 2014/ / / / /19 0 0% n/a n/a n/a n/a 0-50 n/a 5%* 7% 9% 13% n/a 9%* 11% 13% 16% %* n/a n/a n/a n/a %* 13%* 15% 17% 19% %* 14%* 16% 18% 20% %* 15%* 17% 19% 21% %* 16%* 18% 20% 22% %* 17%* 19% 21% 23% %* 18%* 20% 22% 24% %* 19%* 21% 23% 25% %* 20%* 22% 24% 26% %* 21%* 23% 25% 27% %* 22%* 24% 26% 28% %* 23%* 25% 27% 29% %* 24%* 26% 28% 30% %* 25%* 27% 29% 31% %* 26%* 28% 30% 32% %* 27%* 29% 31% 33% %* 28%* 30% 32% 34% %* 29%* 31% 33% 35% %* 30%* 32% 34% 36% %* 31%* 33% 35% 37% %* 32%* 34% 36% 37% %* 33%* 35% 37% 37% %* 34%* 36% 37% 37% %** 35%** 37% 37% 37% %*** 36%*** 37% 37% 37% % 37% 37% 37% 37% % 37% 37% 37% 37% 220 or over 35% 37% 37% 37% 37% Emissions figures for vehicles are rounded down. Diesel supplements: *add 3% **add 2% ***add 1%. The 3% diesel supplement to the percentage still applies until 5 April 2016 when it is abolished. The percentage continues to be capped at 35% up to 5 April 2015 then capped at 37% thereafter. 2 a lex autolease fact sheet budget 2014

3 what s changed? fuel duty Budget 2014 announced further support for motorists through the further cancellation of the fuel duty increase that was planned for 1 September These fuel duty freezes mean that petrol will be 20 pence lower per litre than it would have been. Therefore, this is a welcome relief for companies as it helps contain costs. Whilst the continued freeze of the fuel duty is good news, now is an opportune moment to review company fuel expenditure management and develop strategies that not only maximize fuel efficiency but also encourage appropriate driver behaviour. Annual Investment Allowance Businesses are able to claim the Annual Investment Allowance (AIA) in respect of their capital expenditure on plant and machinery excluding cars. The AIA is effectively a 100% Writing Down Allowance (WDA). The limit of which has increased to 500,000 per annum, for the period from April 2014 to 31 December This Annual Investment Allowance can be used for the purchase of light commercial vehicles and motorcycles. The allowance is available to a single company but where there is a group of companies or there are related companies under common control, the limit of the allowance remains at 500,000. Companies purchasing vans and motorcycles need to consider maximizing new AIA limits. This therefore provides an opportunity to consider alternative funding of these vehicles, as contract purchase may be more appropriate. vat fuel scale charge Where businesses recover VAT on fuel used for private motoring, the scale charge to be used from 1 May 2014 has decreased as shown below. CO 2 emissions (g/km) Current VAT fuel scale charge, 12 month period 120 or less , ,080 1, ,145 1, ,215 1, ,280 1, ,350 1, ,415 1, ,485 1, ,550 1, ,620 1, ,685 1, ,755 1, ,820 1, ,890 1, ,955 1, ,025 1, ,090 1, ,160 2, ,225 2, ,295 2, or more 2,360 2,194 From 1 May 2014 VAT fuel scale charge, 12 month period 3 a lex autolease fact sheet budget 2014

4 what s changed? VEHICLE EXCISE duty (VED) From 1 April 2014 VED (Vehicle Excise Duty) rates will increase in line with RPI (Retail Price Index). The Government will freeze the VED rates for Euro IV and V light goods vehicles in 2014/15. VED Band CO 2 emissions (g/km) 2013/14 First Year 2013/14 Standard 2014/15 First Year 2014/15 Standard A Up to B C D E F G H I J K* L M Over 255 1, , *Band K includes cars that have a CO 2 figure over 225 g/km but were registered before 23rd March Paper tax discs will be abolished from October 2014, removing an administrative inconvenience for millions of motorists, as well as providing some operational cost savings for companies. Motorists will be able to pay their VED by direct debit annually, biannually or monthly, should they wish to do so for a 5% surcharge (if biannual or monthly). Vehicle Excise Duty rates have been increased in line with inflation. However, the Government is still continuing with its long term aim of making higher emitting vehicles more expensive to run. The changes to Vehicle Excise Duty will impact on the whole life cost of running your vehicles. We can help you to understand how your current vehicle choices will affect the costs of running your fleet in the future, and assist you in making the right decisions. 4 a lex autolease fact sheet budget 2014

5 what was previously announced corporation tax As previously announced, from 1 April 2014 the main rate of corporation tax will reduce by 2% from 23% to 21%. In addition to this, as announced in the Autumn Statement, there will be a further 1% reduction taking the CT rate to 20% in April By April 2015, this will bring the large companies rate in line with the small companies rate of corporation tax which will remain at 20%. This works towards a simpler tax system for companies of all sizes whilst making it competitive for businesses thereby supporting them by laying the foundations for sustainable economic growth. From a fleet perspective, the reduction in corporation tax will help mitigate some of the impact on the cost of lease rental restriction which will apply to new leased cars with CO 2 emissions greater than 130 g/km. lex Autolease fuel benefit charge (FBC) The fuel benefit charge multiplier for private fuel for company cars increases from 21,100 to 21,700 from 6 April The effect of this will be that fuel for private motoring becomes even more of a benefit in decline. There is further commitment to increase this in line with inflation. This is now a very expensive benefit to offer with the true financial benefit being far less than the cost of providing it. Interest free loans From 6 April 2014 the threshold for interest free loans provided by employers to employees doubles to 10,000 per annum. The tax efficiency of ECOS is increased given that from April 2014 employers may provide interest free loans up to 10,000 to employees without generating a benefit in kind. This can be used to reduce the amount to be funded in an ECOS contract as well as reducing the potential amount of tax/nic due on such schemes. This, combined with an increase in driver contribution, where contributions are benefit in kind based, could have the effect of making ECOS more attractive. lex Autolease Employer s National Insurance (NI) for under 21s The Autumn Statement 2013 abolished employer NICs for under-21 year olds earning less than 813 a week. This should have a positive impact on Employee Car Ownership Schemes (ECOS) due to lower gross up costs. However with respect to salary sacrifice schemes, this may erode the savings achieved by employers unless steps are put into place to address this for under-21 year old drivers. This will apply to existing arrangements live as at 6 April 2015 and subsequent arrangements thereafter. The result of these changes is that any potential NI saving (arising from the fact the class 1A NI cost on the company car is generally lower than the NI the employer would have paid on the salary had it not been sacrificed) will no longer be available where the driver of the salary sacrifice car is under-21. Instead there may be a cost, as the Class 1A NI on the car benefit in kind will still be due. The impact of this measure should not be significant for companies given that there are likely to be relatively few drivers in ECOS and salary sacrifice schemes who are under a lex autolease fact sheet budget 2014

6 what was previously announced Company van taxation Where company vans are used for private use (other than home to work travel), the Government has increased the van benefit charge to 3,090 from 6 April Van fuel benefit charge From 6 April 2014, the van fuel benefit charge multiplier will be increased to 581. There is further commitment to increase this in line with inflation. Electric vehicles Welcome news for the electric vehicle market has been announced that during 2014 to 2015, the government will invest 5 million in a large scale electric vehicle readiness programme for public sector fleets. The programme aims to promote the adoption of ultra-low emission vehicles, demonstrating clear leadership by the public sector to encourage future widespread acceptance. Whilst the investment is good news, it does not appear to be consistent with the changes made on company car taxation for ULEVs. lex Autolease Company car benefit As previously announced in the Autumn statement 2013, new legislation will also ensure that where an employer leases a car to an employee, the benefit is taxed as a car benefit rather than as employment earnings. Advisory fuel rates From 1 March 2014, company car advisory fuel rates are as follows: Engine Size Petrol Diesel LPG 1,400cc or less 14p 12p 9p 1,401-1,600cc 16p 12p 11p 1,601-2,000cc 16p 14p 11p Over 2,000cc 24p 17p 17p The rates are reviewed four times a year. Any changes will take effect at the beginning of calendar quarter on 1 March, 1 June, 1 September and 1 December. These will be published on the HM Revenue & Customs (HMRC) website shortly before the date of change. Payments for private use of a company car or van The Autumn Statement 2013 announced that with effect from 6 April 2014, the government will introduce legislation to ensure individuals make payments for private use of a company car or van in the relevant tax year. Employers will need to ensure that employees (particularly those going off on long term leave) make private use contributions due before the end of the tax year in which the private use takes place. Alternatively, employers need to ensure that only those contributions actually made in the tax year, reduce the cash equivalent of the car benefit in kind. 6 a lex autolease fact sheet budget 2014

7 WE RE HERE TO HELP... The taxation of company cars and vans continues to support the Government s objective of driving towards a low carbon economy. This has implications for car policy, fuel provision and choice of vehicle. The Strategic Fleet Consultancy team can provide guidance on cost reduction and policy improvement initiatives designed to ensure that as the cost of motoring continues to rise, your provision of fleet is aligned to best practice and is fit for purpose. If you have any questions about how any of these changes affect your fleet, please contact your Customer Relationship Manager in the first instance. For a more detailed fleet review to identify cost saving opportunities, our Strategic Fleet Consultancy team is available to provide guidance on setting a fleet policy that works for you. To find out more, contact our dedicated Strategic Fleet Consultancy team: call: visit: lexautolease.co.uk 7 a lex autolease fact sheet budget 2014

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