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Chancellor’s 2020 Budget: the automotive sector reaction

Automotive retail sector analysts suggested that the limited eligibility of many business benefits announced in Chancellor Rishi Sunak’s Budget 2020 could limit the advantages for the automotive retail sector.

While a decision to scrap VED road tax on electric vehicle (EV) priced over £40,000 up to 2025 and the extension of the plug-in car grant (PCIG) to 2022/23 could maintain the growth trend amid alternative fuel vehicles (AFV) other more practical business measures could fail to have an impact.

​Steve Freeman, nation motor head at MHA MacIntyre HudsonSteve Freeman, nation motor head at MHA MacIntyre Hudson, said that the suspension of business rates and a £3,000 cash grant for those retailers with property that has a rateable value less then £51,000 per annum and a dramatic reduction from £10m to £1m in entrepreneurs’ relief would be little benefit.

But he added that larger retailers would see substantial increases in tax bills as a result of the latter measure. He said: “This limit substantially increases (larger retailers’) tax bills (an additional 10% of tax on the gains above £1m) following a transaction, and we can expect a lot more transactions in the coming years due the significant uncertainty in the sector resulting from developments in areas such as electric vehicles, e-commerce and online retailing, connected cars and mobility as a whole and impact on dealers financial position and prospects.”

Nigel Morris, employment tax director, MHA MacIntyre HudsonFreeman’s colleaguie Nigel Morris, MHA MacIntyre Hudson tax director, welcomed the proposal to retain the ability for businesses to reclaim 100% First Year Allowances on the purchase of a Zero Emission Vehicle (ZEV) up to April 2025, stating that it will “help some companies to fund the additional costs of an EV over an ICE car with the accelerated allowances”.

However, Morris said that moving vehicles with a CO2 rating of between 1g/km and 50 g/km (hybrids) into the standard writing down pools will increase the period of time over which capital allowances for those vehicles can be claimed.

Morris praised the decision to scrap the Expensive Car Supplement up to 2025 for EVs costing more than £40,000 will help potential purchasers with the Total Cost of Ownership (TCO) calculations when considering the viability of a new (more expensive) EV over an existing ICE vehicle.

He also welcomed confirmation of the previously announced changes to the CO2 percentages will by 2022/2023 be back to their published rates in existing legislation and will be sustained throughout the tax years 2023/4 and 2024/25. 

Morris said: “This provides a great amount of certainty for fleet decision makers and drivers up to April 2025.”

ASE chairman Mike JonesASE chairman, Mike Jones, said that UK motor dealerships would welcome the investment in “green energy”, which he said would create “both opportunity and demand” for new efficient vehicles.

But he noted: “Most disappointing of all was the announcement to confirm that the widely forecast changes in CGT entrepreneur’s relief were correct reducing the value of the relief by 90% from £10,000,000 to £1,000,000.

“Many dealerships are at a crossroads and wondering what the future might hold. Many more will be in the early stages and some a little further advanced in terms of structuring and delivering upon their strategy for the future. This announcement comes as a considerable disappointment.

“Moreover, whilst Corporation Tax remains at its lowest level for many years at 19% the pre-budget announcement that it was not to reduce further to 17% is also a disappointment.”

Andrew Mee is the senior forecasting editor at Cap HPIAt Cap HPI Andrew Mee, head of forecast, said that the 2020 Budget appeared to be a good budget for the automotive sector.

He said: “We welcome the £500m investment in extending the EV charging hub network, and £1bn to be invested in green transport solutions; although it remains to be seen if the planned investment is in addition to what has already been announced.

“Similarly, the reference to tax reforms in order to encourage the take-up on EVs. The changes already announced should have a positive effect on increasing the take up of electric vehicles.”

Mee added: “Petrol and diesel drivers will be relieved to hear that fuel duty has been frozen. If this had been increased it could have been seen as a nail in the coffin for petrol and diesel vehicles.

“Overall it would appear this is a positive budget which looks to invest in cleaner, much more eco-friendly vehicles but also offers some relief to drivers of petrol and diesel vehicles in that they won’t be punished at the pumps in the short term.”

SMMT chief executive, Mike HawesMike Hawes, the Society of Motor Manufacturers and Traders' (SMMT) chief executive, said: “Unprecedented situations call for unprecedented measures so today’s emergency funding and wider measures to support businesses and workers in managing the likely effects of coronavirus is very welcome.

“Given the immediate challenges, however, we are pleased to see the Chancellor find room in his Budget to help make zero emission motoring a more viable option for more drivers – essential if we are to begin to meet extremely challenging environmental ambitions.

“The continuation of a plug-in car grant is an essential step in the right direction and, alongside the removal of the premium car surcharge on VED and reduction in company car tax for these vehicles, as well as a strategic review of national charging infrastructure requirements, should help encourage consumers and support the beginnings of a market transition.

“Of course, much more needs to be done to maximise the opportunities as we transition the UK market and industry to new technologies, and the promised spending review will be a crucial moment for government to set out a long term vision for transport decarbonisation and industry investment in the UK.”

Ian Plummer, director, Auto TraderAuto Trader director, Ian Plummer, said that the Chancellor’s budget announcement that the Government will look to cut EV taxes and invest in national charging infrastructure to facilitate the transition to EVs was welcome.

He said: “We know that range anxiety and a lack of charging infrastructure are some of todays’ biggest barriers to purchasing an EV, therefore we welcome the Government’s plans to invest in the national charging infrastructure and to lower taxes on EVs.

“However, we feel that the Government needs to go further and put in place more impactful fiscal incentives, such as VAT exemptions, akin to those seen in countries such as Norway.

“So long as new technology stays significantly more expensive than other options, we’re only likely to see incremental change rather than a meaningful step change in adoption.”

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