MHA | Impact of the Autumn Statement on the automotive sector

Impact of the Autumn Statement on the automotive sector

· Posted on: November 21st 2022 · read

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From an automotive sector perspective, the targeted sector tax legislation was expected and whilst not helpful in improving electric vehicle affordability it does at least provide a degree of mid term clarity for drivers particularly in the company car segment.

Summary of the impact of the Autumn Statement on Motor

Most business owners in the sector will be concerned about the squeeze on household disposable income and the effect on demand for cars and car maintenance. Disappointingly, when so much of the discussion has been around energy costs and during the second week of COP 27, we did not receive much support in persuading more motorists to adopt electric vehicles. The government perhaps thinks that momentum towards the 2030 ZEV target is irreversible now and therefore not requiring of further incentives. Those of us in the sector know the hard yards on this challenge lie ahead.

The chancellor’s plan was to “deliver a plan to tackle the cost-of-living crisis and rebuild our economy”. His top three priorities were "stability, growth and public services". With the broad principle for “those with more to contribute more”.

Impact on demand

As predicted by many, the freezing of income tax bands and allowances has income tax bands and allowances has been used mainly as a stealth tactic to increase the tax take without altering headline rates or allowances. Inflationary wage increases alongside frozen tax bands and allowances have created a substantial ‘fiscal drag’, with taxpayers now set to lose a higher proportion of their income to the taxman.

In addition, there will be further costs because although the energy price cap has been extended for 12 months from April 2023, a household using a typical amount of gas and electricity will pay £3,000 annually, up from £2,500, as the Energy Price Guarantee rises.

This is welcome because without the Government’s support, experts have said the figure could have hit £3,700. There will still be a sizeable hit on consumers’ pockets which is not ideal news for motor dealers.

Similarly, the income tax additional rate threshold will be lowered from £150,000 to £125,140 from 6 April 2023 potentially impacting demand for product from more premium brands.

The Government say that rates will continue to incentivise the take up of electric vehicles, with the following changes being proposed:

  1. Appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point in 2025-26; a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.
  2. Rates for all other vehicles bands will be increased by 1 percentage point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.

This guidance is overdue and whilst an increase in BIK is unhelpful it was viewed as inevitable. The application of a similar increase across other bandings ensures the delta between EV and ICE remains an incentive towards greener motoring. However there remains a lack of a similarly compelling incentive for private buyers.

Car & Van Fuel Benefit Charges

From 6 April 2023, Car and Van Fuel Benefit Charges and van benefit charge will increase in line with CPI.

First Year Allowance for Electric Vehicle ChargePoint's

A welcome measure to support the uptake of EVs is that the Government plans to extend the 100% First Year Allowance for electric vehicle ChargePoint's to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

This will ensure that the tax system continues to incentivise business investment in charging infrastructure.

Impact on Operational costs

Business Rates

From 1 April 2023, business rate bills in England will be updated to reflect changes in property values since the last revaluation in 2017. A package of targeted support has been announced with the following key points:

  • The business rates multipliers will be frozen in 2023-24 lasting five years until the next review. This will support all ratepayers, large and small, and mean bills are 6% lower than without the freeze, before any reliefs are applied.
  • Upwards Transitional Relief will support properties by capping bill increases caused by changes in rateable values at the 2023 revaluation. The ‘upward caps’ will be 5%, 15% and 30%, respectively, for small, medium, and large properties in 2023-24, and will be applied before any other reliefs or supplements.
  • At Autumn Budget 2021 the government announced a new improvement relief to ensure ratepayers do not see an increase in their rates for 12 months as a result of making qualifying improvements to a property they occupy. This will now be introduced from April 2024. This relief will be available until 2028, at which point the government will review the measure.

Retail, Hospitality and Leisure Relief -Support for eligible retail, hospitality, and leisure businesses is being extended and increased from 50% to 75% business rates relief up to £110,000 per business in 2023-24.

These mitigations are welcome but application to the auto sector may be limited as the businesses exceed certain thresholds.

Annual Investment Allowance

In previous economic slowdowns the Government has sought to incentivise capital investment, to promote employment and long-term productive growth, by creating a favourable capital allowances regime.

Measures announced today were limited to the cap at which 100% relief is given in year one on qualifying spend has been permanently set at £1m from April 2023.

However, there was no comment on the ‘super deduction’ which is set to end by 1 April 2023 which will be disappointing for the dealer network who may now wish to turn their attention to ensuring they maximise the corporation tax relief that this scheme offered and consult with their tax advisers to ensure spend qualifies.

Overall, this latest fiscal statement contains few surprises, some comfort in the short term for the poorest off in society and a degree of certainty around taxation regimes that are designed to incentives the electrification of the vehicle parc.

However, it does not insulate the auto sector from the impending recession and underestimates the challenge of persuading more drivers to opt for an EV. In particular, the retail channel will take little encouragement for the near-term prospects and dealers and OEMs may consider that supply challenges extending through 2023 is not all bad.

Find out more 

For further guidance on any of the tax measures discussed in this article, please contact your usual MHA advisor or Contact Us. 

Read the latest tax commentary – visit our dedicated hub where we will be providing resources, advice and practical guidance on what these emergency tax measures mean for you and your business, to help you prepare and manage their impact. 

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