A Mini Budget with Some Pretty Big Changes

Monday 26th September 2022

London sky line with finances

Whether you call it a mini-budget or a ‘fiscal event’, the new chancellor, Kwasi Kwarteng, certainly took the bull by the horns and delivered a bold and for some, controversial, set of measures designed to address the cost-of-living crisis.

We will leave commentary on the potential pros and cons of such sizeable and far-reaching tax cuts to other commentators, but there are some key points which will affect both drivers and business fleet operators.

Reductions in National Insurance

The 1.25 percentage point increase to National Insurance that Rishi Sunak introduced to help address the NHS backlog and increase funding levels for social care will be reversed from November 6. Mr Kwarteng also confirmed that the health and social care levy that would have come into force next April — to replace the rise in National Insurance — would also be scrapped.

The reduction will be welcome news to drivers who currently take a cash option, instead of a company car, and for fleet operators who pay National Insurance contributions on vehicles they provide. In essence, the recently announced changes have the potential to generate a noticeable, though not necessarily significant, saving in the true cost of motoring.

In fairness, we should point out that 15.05% applied to Class 1A NI on employee benefits reverting to 13.8% will mean very little to those running electric vehicles. That said, with tax rates for electric vehicles still significantly less than petrol or diesel, switching to an electric car still makes sound financial sense for most businesses and drivers.

Energy price cap delivers savings for EV drivers

Whilst not technically part of Kwasi Kwarteng’s mini budget, the recently announced £2,500 energy price cap is welcome news for home-charging electric vehicle drivers who have been understandably worried about the soaring cost of electricity.

However, it’s important to note that the figures quoted relate to a household with typical usage and so this doesn’t actually place a cap on the amount you can be charged. Use more than this and you will of course be charged more. That said, with everything included — tax, fuel, repair bills etc. — most people will find that electric vehicles still work out cheaper than their petrol or diesel equivalents.

Income tax drops from 20% to 19% and abolishing the 45% bracket

For those people fortunate enough to earn over £150K a year, a reduction in the top rate of tax is simply a continuation of a trend which started in 2013 when the rate was reduced from 50% to 45% and it is now 40%. Whilst this affects less than 700,000 people in the UK, next April’s reduction in the basic rate of income tax from 20% to 19% will benefit over 32 million of us.

Drivers taking a car through a electric car scheme may benefit slightly less than they would have due to the changes in PAYE and NI, but switching to an EV through a company operated Salary Sacrifice scheme can still deliver significant savings for many drivers.

Scrapping of IR35 regulations for contract ‘staff’

The chancellor also, perhaps surprisingly, abolished changes to IR35 regulations introduced in 2017 and 2021. This means that from April 2023 businesses will no longer be responsible for determining the employment status and ensuring the right amount of tax and National Insurance is being paid by workers providing services through an intermediary. This is a potential time and money saver for any business employing drivers and other freelance contractors.

Capital Allowances

The Annual Investment Allowance (AIA) threshold of £1 million, providing 100% tax relief on investment in plant and machinery, has been made permanent — at least until there is a change of government — rather than returning to £200,000 from April 2023 as originally scheduled. There were also some adjustments to the rules relating to the application of the super-deduction now that corporation tax will no longer see a rise to 25%.

What’s next?

The chancellor has confirmed that he will deliver an official budget before the end of the year and there may well be statements and additional details released before then. Given the boldness with which he has started, it will be interesting to see what more he has up his sleeve. Will we get more details on future taxes designed to plug the gap in treasury revenues as the switch to electric vehicles accelerates. Will drivers and fleet operators be protected from the spiralling fuel costs seen earlier this year via some form of cut in duty? Will we get more long-term certainty in the rates of Benefit in Kind taxation. Will we have to wait and see…

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Novuna Vehicle Solutions is a trading style of Mitsubishi HC Capital UK Plc. Other brand names under which we trade include Novuna Consumer Finance, Novuna Personal Finance, Novuna Business Finance and Novuna Business Cash Flow.

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