It is fair to say that today’s Autumn Statement has been nervously awaited by not only tax advisers, but the wider economy and markets. With a £55 billion hole to plug, it wasn’t clear who would be left with the bill, and there had been rumours of sweeping tax rises affecting all areas of taxation.
The verdict from a pure tax perspective is probably that it isn’t as bad as it could have been, but that goes nowhere near explaining the whole story. Within the automotive industry, we all know that consumer confidence is king, and it’s not so much the actual monetary effect on incomes that counts, but people’s perception of whether they feel as if they have less money to spend. The OBR report does not help with this, as it has confirmed that we are now in recession and that average real post inflation after tax income will drop to the lowest level since 2014. As a result of this Autumn Statement the tax take will also be at the highest amount it has been for many decades.
We will have to see how customer demand responds to the announcements, and whether for example, consumers decide to run their cars for longer rather than changing to a newer model at the earliest opportunity.
The Statement also directly affects motor retail businesses, and I have outlined the main measures and considerations below.
Vehicle excise duty to apply to electric vehicles from April 2025
Electric vehicles including cars, vans and motorcycles will need to pay road tax, including the expensive car supplement from April 2025 and this measure will apply not only to new registrations, but to existing vehicles. As we all know, the proportion of electric vehicle sales continues to increase and from my discussions with dealers, it was felt that it was only a matter of time before the Treasury would take steps to try and recoup the gap in VED receipts. Cost continues to be a concern for new car buyers however, and when added to the removal of grants earlier this year and the rising cost of electricity, this may prove a disincentive for customers considering the switch to electric.
100% first year allowance for electric vehicle charging points extended until 31 March 2025
This provides a 100% tax deduction in the year you incur the expenditure. With the increase in the number of electric vehicles in product ranges, manufacturers are requiring a corresponding increase in charging points at dealerships. You may not have a choice over incurring this expenditure but maximising the tax deduction helps to reduce the real cost to the business, especially if you are affected by next year’s corporation tax rise. I am also seeing more queries in relation to employee use of chargers. This is a complicated area and advice should be taken over correct tax treatment.
Advisory fuel rate for electric cars
Although not a measure from the Autumn statement, HMRC also confirmed this morning that the advisory fuel rate for fully electric cars will rise from 5 pence to 8 pence per mile from 1 December 2022.
Company car tax rates
The Autumn Finance Bill will set out company car tax rates in force up until April 2028. This will allow both you and your business customers to factor in the ongoing benefit in kind costs of your vehicle fleet into your longer-term projections. These rates will continue to incentivise electric vehicles, but the percentages do slowly rise. A close eye will need to be kept on HMRC’s official rate of interest to ascertain whether we reach a point that a company car alternative, such as an Employee Car Ownership scheme could provide a better result for electric vehicles.
Personal tax
Although the Chancellor didn’t increase any tax rates, he increased the tax take by stealth through the freezing or reduction in thresholds and allowances. These include the thresholds for income tax, NIC and IHT being frozen until April 2028, dividend allowance halved from £2,000 to £1,000 from April 2023 then halved again from April 2024 and the capital gains tax exemption reduced from £12,300 to £6,000 in April 2023 then to £3,000 April 2024. The additional rate threshold for paying 45p rate tax is to also be reduced from £150,000 to £125,140 from April 2023. When combined with the corporation tax rate increase next year, planning your remuneration strategy has become a great deal more complicated and is not as simple as defaulting to dividends. I am recommending that all auto retailers undertake a detailed review of how they reward shareholders and key staff to ensure that the optimum and most appropriate strategy has been adopted.
Increase in National Minimum and Living Wage from 1 April 2023
Most dealers pay wages in excess of the minimum, but you may have some staff who fall within these rates even temporarily, for example if a sales person has a poor month. You should ensure that your control procedures are updated to take account of this increase and that it is also factored into the budgets you will be preparing over the next few months.
Increase in business rates relief
Retail businesses are amongst those set to benefit from increased relief, but we are awaiting full details of the exact businesses that will qualify. Rates are one of the largest overhead costs for many dealers and any reduction in this expense would be a welcome measure.
Energy bill support
A review is going to be undertaken by HMRC Treasury to consider the form support should take for non-domestic energy consumers. The findings will be published by the end of December and relates to support available from April 2023. Dealerships obviously have relatively high energy use, and it is often very difficult for you to reduce this through changes in working practices due to manufacturer standards for example. Some dealers are taking steps to make their dealerships more energy efficient or to even go off grid completely and we are seeing an upturn in enquiries about how this can be achieved in a tax efficient manner.
If you would like to talk through how these announcements affect you and your business, then please contact me at michelle.malone@armstrongwatson.co.uk
