The Autumn Budget, scheduled to take place on Wednesday 30 October 2024 is the first significant opportunity for the new Labour Government to outline its plans for the UK’s economic challenges and future growth strategies.
What will the Budget address?
The Autumn Budget 2024 is anticipated to address Electric Vehicle (EV) adoption, with potential changes to Benefit-in-Kind (BiK) tax and enhanced investments in public charging infrastructure. These announcements could transform the market for your business if you run an electric company car fleet and your employees who drive them.
In recent years, the Government has been encouraging the adoption of electric and low-emission vehicles by offering favourable BiK rates and grants. However, changes that could be announced in the Autum Budget include:
- A review of BiK tax in general for EVs including the current 2% BiK rate for fully electric cars.
- Accessing if BiK tax for higher-emission vehicles needs to be increased.
- Understanding if new tax bands could encourage more businesses and employees to opt for ultra-low emission vehicles.
Tax increases are inevitable
Following the general election the new UK Government has claimed a £22 billion ‘black hole’ in public finances, leaving the country in no doubt that the treasury is seeking opportunities to increase tax revenue. Given the statements made in the election manifesto, the Chancellor of the Exchequer must focus on ways that don’t require an increase in headline rates of Income Tax, Corporation Tax or VAT.
Starting with this premise that additional tax revenue will be required to fund public spending and reduce national debt, company car tax rates can easily be increased without increasing the headline rates of taxation.
The previous government published company car tax rates until the end of the 2027/2028 tax year. These rates offer a strong incentive for company car drivers to switch to EVs and have been complemented by equally attractive salary sacrifice incentives that can extend to non-car entitled employees. So, let’s see if our predictions are correct and the Autumn Budget sees changes to these arrangements.
Salary sacrifice schemes in the workplace
Under current salary sacrifice schemes, an employee could be paying just 2% Benefit-in-Kind tax for a fully electric car. For those in senior positions, who may have access to a prestigious EV, they’ll be paying a small amount from their salaries – arguably a disproportionate amount.
The Chancellor, Rachel Reeves has warned that those with the ‘broadest shoulders will be bearing the largest burden’, suggesting that the Autumn Budget may scrap tax breaks for high earners utilising the benefits of the low BiK rate for company cars.
However, opinions among the automotive industry are that removing salary sacrifices schemes will slow down EV adoption, which when it’s already behind schedule, might further impact the speed of consumers switching to EV.
The future of salary sacrifice
In our opinion, it’s likely that the benefits of salary sacrifice will reduce over time. This view is based on recent history. The introduction of Optional Remuneration legislation in 2017 effectively removed the benefit of salary sacrifice arrangements for motor vehicles, but to support the transition to low emission vehicles specific exceptions were made.
Once this transition is embedded, the requirement to provide tax incentives again falls away and the exceptions for low and zero emission cars can easily be removed, without impacting headline taxation rates.
Considering this in more detail, firstly, the principal benefits of salary sacrifice car schemes are available for all cars which emit less than 75 g/km of CO2.
With Corporation Tax levels already benchmarked against 50g/km it would not be surprising to see these measures aligned in the near future. We also expect that if the goal is a shift to full BEVs rather than hybrid vehicles, then the qualifying limit could be reduced to 0g/km in the coming years and in time the benefits of salary sacrifice could be removed altogether.
Incentives for public chargepoints
The Government want to continue its commitment to expanding the EV charging infrastructure, and so we expect there to be some announcements in the Autumn Budget to support this. If the Labour Government confirms its commitment to rapidly expand EV charging networks, this could lead to increased funding for public charging stations, tax incentives for workplace installations, and support for local authorities to enhance on-street charging options.
For businesses like yours, this could make fleet electrification more feasible.
What's next?
At the moment, this is all still speculation and opinion, so it’s important to wait until after the Autumn Budget before you take any action. However, it’s likely changes are ahead, so now might be the right time to consider how you plan to transition your car fleet to electric.
Transitioning your fleet
Following any announcements next week, if you’d like to discuss your options for transitioning your fleet and how we can help, get in touch.