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Budget 2006: key points

Key points affecting the motor industry from Gordon Brown's budget.

Company car tax

The Government has today published a report on what it calls stage two of the company car tax evaluation. To view the report click here.

Key changes:

  • The threshold for the minimum percentage change rate for calculating benefit in kind from company cars will be reduced from 140g of carbon dioxide per kilometre to 135g/km from 2008/09.

  • A new lower 10% band for company cars with CO2 emissions of 120g/km or less will be introduced for 2008/09.

  • A review of the taxation of employee car ownership schemes by HM Revenue and Customs because of their increasing popularity

    Vehicle excise duty

    The Chancellor heralded the changes as a ‘radical reform’.

    Taking effect from tomorrow a zero rate for the small number of cars with the very lowest emissions will be introduced. Instead of £75 for cars with the lowest emissions we will have a ‘significantly lower rate’ of £40.

    The details:

  • A new higher band of graduated VED (band G), set at £210 for petrol cars, will be introduced for the most polluting new cars (those above 225g of carbon dioxide emissions per kilometre)

  • The VED rate for the small number of cars with the very lowest carbon emissions (band A) will be reduced to £0 to encourage take-up and assist the development of the low carbon car market

  • VED rates will also be reduced for band B by £35 and C by £5, frozen for bands D and E, and increased by £25 for band F

  • Rates for pre-2001 registered cars and LGVs in the lower band will be frozen with the higher band increased by £5

  • The reduced rate graduated VED for alternative fuel cars will be extended to include those cars manufactured to run on high blend ethanol (E85)

    The Government said 50% of cars will see their VED frozen or reduced in total. It said three million cars will pay VED of £100 or less.

    ‘Instead of just 300,000 motorists paying £100a year or less, 3 million will now pay £100 or less’ Chancellor Gordon Brown said.

    VED bandings

    * To work out the VED rate for your car click here.

    Fuel duty

  • The traditional rise in fuel duty in line with inflation was – for the fourth successive budget - deferred until September 1 because of ‘continuing oil market volatility’.

  • Biofuels – the 20 pence per litre biofuels duty incentive has been extended until 2008/09.

  • LPG – From September , duty rates on LPG will increase by the equivalent of 2.25 pence per litre to reduce the differential with main rates by 1 pence per litre to ‘more accurately reflect the environmental benefits of the fuel’. Also, duty rates on natural gas will increase by the equivalent of 1.25 pence per litre, maintaining the differential with main rates.

    The Government also announced that the duty differential between LPG and main road fuels will be reduced by 1 pence per litre each year to 2008/09 and that the duty differential between natural gas and main duty rates will be maintained each year until 2008/09.

    Capital allowances for cars

    The Government is looking at further modernisation of the capital allowances for company cars. Options include incentives for the take up of cleaner cars, including introducing a new car pool with a range of first-year allowances for cars depending on carbon dioxide emissions. This would build on existing 100% first-year allowances for cars with very low emissions and reforms to VED and company car tax.

    A consultation document has been published. To view click here.

    The background and options:

    The Government wants to gain opinions from the fleet industry on modernising tax rules which restrict tax relief on business spend on cars worth more than £12,000.

    Currently, the car is not included in the general plant and machinery pool but accounted for separately, in its own pool.

    The writing down allowances are restricted to a maximum annual amount of £3,000 and when the car is disposed of, a balancing charge or allowance is likely to be generated.

    The Government has considered three options for reforming the current capital allowance rules for cars:

  • Option 1: Abolish the current restrictions and treat all cars in the same way as most other plant and machinery in the general pool

  • Option 2: Introduce a new car pool for all cars with a writing down allowance of less than 25%

  • Option 3: Introduce a new car pool for all cars with a writing down allowance of less than 25%, and a range of first year allowances for cars depending on CO2 emissions. This is the Government’s preferred option.

    VAT fuel scale charge

    The charge, for taxing road fuel when business cars are used for private motoring, is being adjusted with effect from May 1 to reflect changes in fuel prices.

    The company car fuel benefit charge calculation figure will be maintained at £14,400 in 2006/07.

    Minimum wage

  • From October 1, the adult rate of the minimum wage will rise to £5.35.

    And finally, ‘beer and fags’

  • 9 pence increase on cigarettes
  • no increase on whisky
  • 4 pence increase on wine
  • no increase on champagne, sparkling English wine and cider
  • 1 pence increase in pint of beer

    And a word from the Conservatives

    Tory leader David Cameron said he welcomed the changes on carbon emissions because ‘I came up with them’.

    He said: ‘In a carbon-conscious world, we have a fossil fuelled Chancellor.’

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