2024 Spring Budget - how it affects fleet and leasing

THE Chancellor’s Budget on Wednesday 06 March 2024 was called the Budget for Long Term Growth – a series of measures designed to deliver more investment, more jobs and better public services. But which of those measures affect the fleet and leasing industry? Jeff Whitcombe of BCF Wessex takes a detailed look.

National Insurance reduction and salary sacrifice impact

On 06 January 2024 the main rate of Class 1 NIC paid by employees was reduced by 2%. This delivered a monthly saving of around £37.50 to the average employee’s net pay.

The Chancellor confirmed that a further reduction of 2% will come into effect on 06 April 2024. The combined reduction from 12% to 8% in just three months, will deliver an annual saving of around £900 to the average employee.

Many in the fleet industry will immediately think about the impact on salary sacrifice. But the reduction to the savings available for employees throughout the UK with a salary below £50,271, will be minimal compared to their total NIC savings as a result of this announcement.

And let’s not forget that this measure will not affect the salary sacrifice savings generated by UK resident additional or higher rate taxpayers, or Scottish resident top, advanced, and higher rate (with a salary above £50,271) taxpayers, whose salary sacrifice savings will continue to be based on the 2% rate of NIC.

Corporation tax relief - full expensing

Full expensing offers enhanced capital allowances for qualifying plant and machinery; originally intended to be available for just three years the relief was made permanent in the 2023 Autumn Statement.

In the 2024 Spring Budget the Chancellor announced that draft legislation extending full expensing to assets bought to lease will shortly be published for consultation, with a view the tax relief being made available when fiscal conditions allow.

Commenting on this announcement, Gerry Keaney, BVRLA Chief Executive said:

“Today’s commitment to extend full expensing to the rental and leasing sectors is a monumental step forward to rectify an historic injustice. The BVRLA has been an active voice in achieving this change and welcomes the opportunity to engage further in delivering this long overdue alignment in tax policy.”

Under full expensing assets that qualify as main rate expenditure, such as vans and lorries, will qualify for a 100% first year allowance, albeit a 100% balancing charge must be recognised on disposal, effectively adding the sales proceeds to taxable profits.

At present cars are not eligible for full expensing and the Chancellor didn’t clarify whether the proposed legislation would include cars or would still be restricted to commercial vehicles.

So the leasing industry will be eagerly awaiting publication of the draft legislation and whether zero emission cars might be included.

Fuel duty hiatus remains

The temporary 5p per litre fuel duty cut introduced in 2022 has been extended. Fuel duty has been frozen for another 12 months, extending the freeze to a 14th year.

This will no doubt be welcomed by commercial vehicle fleets still running diesel vans until suitable electric replacements are onboarded.

National Minimum Wage

The National Minimum Wage goes significantly to £11.44 per hour from 1 April 2024; a rise from £18,964 per annum to £20,800 per annum for someone working 35 hours per week or circa £21,674 to £23,800 for someone working 40 hours per week.

While good news for the lower paid, it could affect the ability of some employees to participate in salary sacrifice schemes.

Scottish rates of income tax

A range of important income tax changes come into effect from 06 April 2024:

the thresholds for the Starter, Basic and Intermediate rate income tax bands will be increased but the Higher and Top rate thresholds will be frozen;
a new Advanced rate of income tax, set at 45%, will be introduced for those earning between £75,000 and £125,140; and
the Top rate of income tax, which applies to those earning more than £125,140, will rise to 48%.

Once these changes come into force the earned income of those living in Scotland will be subject to six rates of income tax, ranging from 19% to 48%, as well as an effective rate of 67.5% for those earning between £100,000 and £125,140.

Van benefit charge/Car and van fuel benefit charges

Ordinarily these are updated each year in line with inflation, but will be frozen in 2024/25 at the current rates.

Vehicle Excise Duty

From 01 April 2024 VED for cars, vans and motorcycles will be uprated in line with inflation.

But to support the haulage industry VED for heavy goods vehicles and the HGV levy will be frozen at the current rates in 2024/25.

Impacts for the leasing industry

The proposed publication of draft legislation for full expensing of assets bought to lease has been welcomed by those working in the leasing industry. But the new legislation will need to be read carefully to find out whether leasing companies will finally be able to claim enhanced capital allowances on cars.

The further reduction of the main rate of NIC for employees will diminish the savings available from salary sacrifice. But with evidence suggesting that the majority of those choosing salary sacrifice pay tax at higher rates it’s anticipated this measure could have limited impact

Staying with salary sacrifice, no change to the optional remuneration arrangement threshold of 75 g/km, means salary sacrifice for ultra-low emission vehicles continues to be supported by the Government.

But there is disappointment that the BiK percentages beyond 05 April 2028 have not been announced; that campaigns to reduce VAT on public charging and to reverse the proposed application of VED – including the expensive car supplement – to zero-emission cars continue to be ignored.

“At a critical time for the transition to zero-emission vehicles, no news is bad news. We have heard nothing on charging, VED, Benefit in Kind, VAT on public charging, grants for electric vans, or a consumer education campaign. The Chancellor is leaving our sector in limbo. The Government needs to be braver in unlocking the billions of pounds in zero emission investments required across the whole road transport sector, from fleets, small businesses and private motorists.”

Gerry Keaney, BVRLA Chief Executive Tweet

Meanwhile Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT), noted there was “little to help consumer demand”, labelling the Budget a “missed opportunity” to deliver fairer tax for a fair transition.

"Reducing VAT on new EVs, revising vehicle taxation to promote rather than punish going electric, and an end to the VAT ‘pavement penalty’ on public charging would have energised the market. With both Government and industry having statutory requirements to deliver net zero, more still needs to be done to help consumers make the switch.”

Mike Hawes, Chief Executive, SMMT Tweet