When the Chancellor Jeremy Hunt stood up today to give his first Budget speech, the hope for most motor dealers was that, despite all indications to the contrary, the unpopular corporation tax rise to 25% would be abolished. Unfortunately, this was not the case. What we got instead was a statement centred on economic growth through what he called his “four Es” – employment, education, enterprise and everywhere. Whilst this forms a nice soundbite, did the statement include anything that could directly benefit the automotive sector?
Capital Allowances
The OBR has calculated that the April corporation tax rise will mean that CT receipts as a share of the economy will be at their highest level since 1965 when the tax was introduced. Although the Chancellor often implies that is it only the largest companies that will be affected, in reality it is the type of owner managed businesses which form the heart of the motor trade that will feel the pinch.
Like many Chancellors before him, Jeremy Hunt has turned to capital allowances as a way to argue both that our tax rates are competitive compared to other countries and to encourage investment and growth within the economy.
From previous announcements, it was already known that the capital allowance Annual Investment Allowance would now be at a permanent level of £1million. The Budget has gone further than this by introducing “full expensing” for relevant capital expenditure incurred by companies from 1 April 2023 to March 2026. As usual, the devil is in the detail, and this 100% allowance will only apply to plant and machinery that would fall within the main rate pool – this would typically include most workshop and office equipment and new commercial vehicles. Special rate pool expenditure, such as features integral to a building like heating and lighting systems, will only qualify for a 50% deduction unless the Annual Investment Allowance is available. Cars will not be eligible for these enhanced allowances.
Although extra tax deductions are always to be welcomed, from a practical perspective, levels of capital expenditure within the sector have tended not to be high enough in recent years to utilise the full Annual Investment Allowance, so full expensing will only be relevant if, for example, you are undertaking a large CI upgrade.
Employment and Pensions
A common issue for most motor dealerships is finding and retaining staff. The Chancellor has announced a package of measures to help people enter, stay and return to the workforce. These measures include extra funding and reform of childcare provisions to aid working parents, and changes to the benefit regime for those who are long term sick or disabled.
Mr Hunt also used his speech to introduce changes to the pensions regime. Although these were intended to help over 50s so that they aren’t forced out of work due to punitive pension charges, they will also benefit owner managed businesses and potentially help with the corporation tax increase.
Firstly, the lifetime pension allowance of £1.07 million has now been abolished, meaning that workers will not have to take the decision to leave employment when their pension pot reaches a high level. Even more importantly, the annual tax free allowance for pension contributions is to be increased from £40,000 to £60,000 from next tax year.
Pension contributions are an often overlooked component of remuneration strategies, and I have already been having discussions with business owners about making contributions through their companies. If contributions haven’t been made in previous years, it is sometimes possible to make a catch up payment in excess of the annual tax free allowance. Subject to certain exceptions, a full corporation tax deduction can be obtained in the year the payment is made. These contributions therefore provide an immediate benefit in terms of a reduced corporation tax bill, but also the long term benefit of an increased pension pot.
Other announcements
There were a number of other announcements that will affect the motor industry:
A subject at the heart of every Budget is fuel duty. It was pleasing to note that this has been frozen for another year.
Something that has been the scourge of every road user is potholes, so the £200m put aside to help solve this is a step forward but in reality is probably a very small pebble in a very big hole
With the move to electric vehicles, a major concern has been the UK’s capacity to generate enough power. The added investment in energy generation including via nuclear is a good sign that energy security is finally being taken seriously
It is likely that more details from the Budget will emerge over the next few days, and we will update you on anything that is relevant to the automotive sector.
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
