In his 2023 Autumn Statement, the Chancellor wanted to convey the message that steps he had taken in the past were now allowing him to reduce the tax burden on businesses and individuals. Although many of his announcements are welcome, when tax as a share of GDP is at its highest level since the Second World War, and as most people will still see their tax increase compared to previous years, the message is not so clear cut.
From an automotive perspective, many of the announcements will have a direct impact on auto retailers. Where tax savings have been suggested, however, the level of these savings seems unlikely to make customers, who continue to experience cost of living challenges, decide now could be the time to invest in a new vehicle, or for businesses to see a large increase in profits retained.
The main measures are summarised below:
Tax relief for capital expenditure
In the 2023 Spring Budget a temporary measure known as full expensing was introduced which allowed a business to take a deduction for the full cost of qualifying capital expenditure in the year that expenditure was incurred. A 100% deduction was given for expenditure falling within the main rate capital allowance pool and a 50% deduction for special rate expenditure. Cars, assets for leasing and second-hand assets were excluded from these allowances. Full expensing has now been made permanent and the Chancellor has indicated that the Government will also take the opportunity to launch a technical consultation of further changes to capital allowances legislation.
Obtaining tax relief on capital expenditure remains vitally important for motor retailers, especially as we have seen a restart in many manufacturers’ Corporate Indentity (CI) upgrade programmes. In reality, full expensing is unlikely to greatly reduce the tax burden or aid cash flow for most dealers for two main reasons. Firstly, many businesses will now be falling within the higher 25% corporation tax rate compared to the rate of 19% from previous years, so will still see an overall increase in tax on the same level of profits. Secondly, capital spend tended to be at a level that already obtained a 100% deduction due to the Annual Investment Allowance so full expensing will likely make no difference to the amount or timing of tax relief.
National Living Wage
National Living Wage will be increased from 1 April 2024 to £11.44 with the age threshold being lowered from 23 to 21 years old. Many dealers have staff paid at this rate and so this needs to be factored into the budgets for next year.
Changes to National Insurance
The rate of employees' National Insurance will be reduced from 12% to 10% with effect from 6 January 2024. Additional changes for the self-employed include the reduction of the main rate of Class 4 National Insurance by 1% from 6 April 2024 and the ending of the requirement to pay flat rate Class 2 contributions in many cases.
Van benefit and car and van fuel benefit charges
Van benefit charge and fuel benefit charges for cars and vans will be frozen at 2023/24 levels for 2024/2025. This means that the flat-rate van benefit charge will remain at £3,960, the multiplier for the car fuel benefit at £27,800 and the flat-rate van fuel benefit charge at £757.
Investment in EV infrastructure and development
One of the barriers for customers considering purchasing electric vehicles is the lack of charging infrastructure in certain areas of the country. The Government has announced that it will work to remove some of the planning red tape that can delay the installation of charging points and will consult on amendments to the National Planning Policy Framework to prioritise the rollout of EV charge points and hubs. In addition, and in a show of support for the development of electric vehicles in the UK, more than £2 billion will be given to the automotive sector to support the manufacturing and development of zero-emission vehicles, batteries and the supply chain.
Investment in HMRC enforcement activity
The Government continues to be concerned by the tax gap – the difference between taxes actually collected and the amount they believe should have been paid. In recent months we have seen an increase in HMRC compliance activity and visits and this looks to continue as the Government has said it is investing in HMRC’s ability to ensure everyone pays the right amount of tax. It is estimated that this will raise an additional £5 billion of tax revenue over the next five years
Off-payroll working (IR35) and calculation of Pay As You Earn (PAYE) liability in cases of non-compliance
Recruitment remains a difficult area for the automotive sector, and we have seen dealers try to fill vacancies using ways other than the normal employee/employer relationship. Unfortunately, confusion still remains regarding self-employed status and a number of automotive retailers have fallen foul of the off-payroll working rules. In cases where incorrect treatment was adopted, measures in the Autumn Statement will allow the tax liabilities of the deemed employer to be reduced by the amount of tax HMRC estimates has already been paid by the worker. Workers themselves will not pay any additional tax but won’t receive a refund of tax they have already paid.
Research and Development (R&D) tax reliefs
The Chancellor announced a number of changes to this scheme, including the merger of the current RDEC and R&D SME schemes and changes to some of the rates involved. Although more likely to affect vehicle manufacturers, we have seen a number of dealers make claims under the existing schemes, especially in relation to software.
If you would like to discuss how any of these announcements could affect you or your business then please contact Michelle Malone at michelle.malone@armstrongwatson.co.uk
