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Budget Summary

In the first post Brexit Budget, set against a backdrop of an economy bracing itself for the potentially damaging financial effects of a global coronavirus pandemic, the new Chancellor, Rishi Sunak, seems determined that the government will also meet its Road to Zero commitment by announcing a raft of measures clearly designed to accelerate the take up of electric vehicles as the country prepares for the sale of new petrol and diesel cars to be banned in 2035.

Taxation

Company car tax

We’ve known for around 3 years that from 6 April 2020 the company car tax charged on ultra-low emission vehicles (ULEVs) will be calculated by reference to a car’s CO₂ emissions and its zero emission range. But we’ve been waiting since last summer for reconfirmation that the proposed additional incentives for the most environmentally friendly cars will be introduced from 6 April 2020, as we move from a company car tax charge based on CO₂ emissions using the New European Driving Cycle (NEDC), to a charge derived according to the Worldwide Harmonised Light Vehicle Testing Procedure (WLTP).

Following the confirmation delivered in the Budget we now know that cars will be taxed according to the following rules.

Cars taxed according to NEDC emissions

Cars registered before 6 April 2020 will continue to be taxed based on NEDC emissions according to the following rules.

The BiK percentage of 16% applied to all ULEVs in 2019/20 will be reduced in 2020/21 to:

  • 0% for zero emission cars; or
  • 2% to 14%, depending on zero emission range, for cars with emissions between 1 g/km and 50 g/km.

New, narrower bands will be introduced for cars with CO₂ emissions between 51 g/km and 94 g/km. Starting at 15% for cars with emissions between 51 g/km and 55 g/km, the BiK percentage will increase by 1% for each 5 g/km band up to the maximum of 37%, which will be reached at 140 g/km for non RDE 2 compliant diesel cars and 160 g/km for all other cars.

These rates will be frozen until 2024/25.

Cars taxed according to WLTP emissions

Cars registered after 6 April 2020 will be taxed based on WLTP emissions, but as the government has recognised that WLTP has generally increased emissions, the BiK percentage for most cars will be 2% less than the same emissions band under NEDC.

Accordingly, the BiK percentage applied to ULEVs in 2020/21 will be:

  • 0% for zero emission cars; or
  • between 0% and 12%, depending on their zero emission range, for cars with emissions between 1 g/km and 50 g/km.

Likewise, the BiK percentage for most cars with emissions above 50 g/km will be 2% less than the same band under NEDC. Starting at 13% for cars with emissions between 51 g/km and 55 g/km, the BiK percentage will increase by 1% for each 5 g/km band, up to the maximum of 37%, which will be reached at 150 g/km for non RDE 2 compliant diesel cars and 170 g/km for all other cars.

In each of the next two tax years the rates will be increased for these cars by 1% so that by 2022/23 the rates will be the same whether emissions are measured under NEDC or WLTP.

These rates will then be frozen until 2024/25.

Van benefit charge

From 6 April 2020 the van benefit charge will rise in line with inflation to £3,490 (from £3,430), with electric vans taxed at 80% of the full charge.

The proposed future increase in the charge for electric vans will be scrapped with the tax rate for zero emission vans again reducing to nil from April 2021.

Fuel benefit charge

The multipliers will rise in line with inflation, as follows, with effect from 6 April 2020:

  • van benefit fuel multiplier - £666 (from £655); and
  • car fuel benefit multiplier - £24,500 (from £24,100).

Capital allowances

There are no changes to the rates or thresholds for the 20/21 tax year, although from April 2020 the thresholds will be based on WLTP emissions.

However, from April 2021 until April 2025:

  • the first year allowance will only be available for zero emission cars;
  • only cars with emissions between 1 and 50 g/km will be eligible for writing down allowances at the annual rate of 18%; and
  • cars with emissions exceeding 50 g/km will only qualify for a writing down allowance at the annual rate of 6% and, when they are leased, the lease rental restriction will be applied to these cars.

First year allowances for zero emission goods vehicles and natural gas and hydrogen refuelling equipment will also be extended.

Corporation tax

The proposed 2% reduction in the rate of corporation tax will be shelved and therefore the rate will remain at 19%.

Fuel duty

Despite speculation that it would be increased for the first time in a decade, fuel duty on petrol and diesel has been frozen for another year.

It has been announced though that future increases in fuel duty will be considered alongside measures that are needed to help meet the UK’s net zero commitment.

Vehicle Excise Duty (VED)

From April 2020, VED for cars, vans and motorcycles will rise in line with inflation, and the first year rate applied to cars will be based on their WLTP emissions. However, to encourage the uptake of electric cars zero emission cars will be exempted from the £325 ‘expensive car’ supplement, which applies to cars with a list price exceeding £40,000, until 31 March 2025.

The government has also acknowledged that the use of a single standard VED rate in the years following purchase does not encourage the take up of ultra-low emission cars. Accordingly, it has published a call for evidence to help it consider how VED can support the take up of zero and ultra-low emission vehicles.

To support the haulage sectors, VED and the Road User Levy for heavy goods vehicles (HGVs) will be frozen once again.

Further incentives to increase the take up of electric vehicles

Following its announcement that it intends to bring forward the ban on the sale of new petrol, diesel and hybrid vehicles to 2035 the government has committed significant extra funding to incentivise the take up of zero emission vehicles, which it believes may account for up to 70% of new car sales by 2030.

Plug-in grants

Whilst it considers the long-term future of incentives for zero emission vehicles the government will extend the plug-in car, van, taxi and motorcycle grants until at least 2022/23, making available £403 million for the plug-in car grant, and an additional £129.5 million to fund grants for other vehicles.

However, the plug-in car grant has been reduced to £3,000 and will not be available for cars costing more than £50,000. The grants for other types of vehicle remain unchanged.

Electric vehicle charging infrastructure

Recognising that convenient charging infrastructure is required to encourage drivers to switch to electric vehicles, the government will make £500 million available over the next 5 years to support the roll out of a fast charging network, designed to ensure that drivers will never be more than 30 miles from a rapid charging station. The funding will include a Rapid Charging Fund to help businesses with the cost of connecting high-powered charge points to the grid where the costs would otherwise be too high for private sector investment.

Public spending on roads

Among a raft of public spending measures designed to deliver on the government’s promise to ‘level up’ investment across the country, the government announced the largest ever investment will be made in England’s motorways and major roads. As part of the launch of the Roads Investment Strategy 2, more than £27 billion will be spent over the next 5 years to progress transformative projects like the A66 Trans-Pennine, the Lower Thames Crossing, and a new dual carriageway and tunnel to relieve congestion on the A303 around the iconic site of Stonehenge.

In addition, £500 million will be allocated each year between 2020 and 2025 to improve local roads by filling in potholes and preventing them from forming. As a result, there will be a 50% increase in local road maintenance budgets in 2020/21 with the government set to spend £1.5 billion UK wide filling in potholes and resurfacing roads.