While the theme of levelling up runs throughout the Budget, the Chancellor is yet to signal a transport offer that will deliver transformational change for connecting the UK’s regions. This is evident in the £6.9 billion of transport investment for Mayoral city regions outside London - it is largely funding that has been previously announced – for example the £4.2 billion “City Region Sustainable Transport Settlements” and £1.2 billion of the £3 billion that the Government had set already aside for spending on a "bus revolution". This leaves potentially £1.5 billion of genuinely new money, although there is also speculation that some of this represents a re-packaging of existing funding for smaller capital schemes.
Overview of tax measures
Following major announcements at the Spring Budget and the ‘much trailed’ funding announcements on Transport, the Autumn Budget was relatively quiet by comparison from a tax perspective.
Nevertheless, there were a number of changes to select areas of the tax system that will be of interest to businesses in the transport sector, most notably those in the aviation industry.
Annual Investment Allowance (AIA) – The £1 million Annual Investment Allowance (AIA) has been extended to 31 March 2023 to continue to encourage business investment and support economic activity. AIA provides a 100 percent first year capital allowance for qualifying expenditure on plant and machinery up to a specified annual limit.
Vehicle taxation – The rate at which capital allowances are given for vehicles is determined by the CO2 emissions which the vehicle produces. The emissions figure used to calculate this is based on a certificate applied for by the manufacturer specifying the CO2 emissions for the certain type of vehicle. Historically this could be either an EU certificate of conformity or a UK approval certificate, but following the UK’s withdrawal from the EU, a new provisional scheme has been introduced whereby manufacturers must apply for separate GB type approval, and a new comprehensive scheme will be introduced during 2022. In addition, a new process for measuring CO2 emissions (the Worldwide Harmonised Light Vehicle Test Procedure) will replace the previous test procedure (the New European Driving Cycle). This measure represents changes to the capital allowances legislation to reflect the changes to the approval documentation required and the relevant CO2 test procedures. The measure will have effect from the 2017 to 2018 tax year (in relation to income tax and Capital Gains Tax) or for accounting periods ending on or after 4 November 2017 (in relation to Corporation Tax), although it is not yet clear whether and how this retrospective implementation might impact claims made in prior periods.
Freeports – At Spring Budget 2021, the Chancellor announced the introduction of eight Freeports in eight English regions. A range of tax incentives will be available within the designated ‘Freeport tax sites’ including a 100 percent enhanced capital allowance for companies investing in plant and machinery, a new 10 percent rate for the Structures and Building allowance, as well as National Insurance contributions, business rates and stamp duty land tax reliefs. It was confirmed in the Autumn Budget that secondary legislation will be introduced on 29 October 2021 designating the first tax sites at the Humber, Teesside and Thames Freeports, and those Freeports will be able to begin initial operations from November. In addition, maps have been published showing the extent of the Freeport tax sites at these three locations.
Reform of the UK Tonnage Tax regime – The Government announced a package of measures to reform the UK Tonnage Tax regime from April 2022, with the aim of helping the UK shipping industry grow and remain competitive globally. A number of the measures will introduce welcome simplifications to the administrative requirements of the regime, including the removal of the need to consider whether a vessel is flagged in an EU member state in order to qualify for the regime. The Government also announced that guidance on what vessels and operations qualify for the regime will be reviewed to take into account changes in the shipping industry since the regime was introduced in 2000, reflect UK investment in decarbonisation and pollution control, and increase the use of the UK flag.
Review of R&D tax reliefs – Following a comprehensive consultation into research and development (R&D) tax incentives earlier this year, the Chancellor announced several changes that will be made with effect from 1 April 2023. Firstly, it was confirmed that the incentives will be modernised to include costs on data and cloud computing. Secondly, the Chancellor confirmed that the rules will be amended to re-focus the incentives for innovation in the UK, potentially excluding overseas R&D. Thirdly, there will be changes to the administration of the regime to make the anti-avoidance deterrent more robust. However, no details on the precise design of these measures have yet been released and these are not expected until later this autumn.
Business rates – The Government has concluded its fundamental review of Business Rates in England, with the 26-page Final Report published on Budget Day. The tax is retained but will be reformed to make it “fairer and timelier”. The reforms include more frequent revaluations as well as new discounts and reliefs.
Vehicle Excise Duty (VED) – The Government will uprate VED rates for cars, vans and motorcycles in line with RPI from 1 April 2022, and to support the haulage sector and pandemic recovery efforts, the Government will continue to freeze HGV VED for 2022-23 and suspend the HGV Levy for another 12 months from August 2022.
Fuel duty rates – The Government will freeze fuel duty UK-wide in 2022-23.
Second-hand Motor Vehicle Export Refund Scheme – The Government will legislate to be able to introduce a Second-Hand Motor Vehicle Export Refund Scheme. Under such a scheme, businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export. This will ensure that Northern Ireland motor vehicle dealers will remain in a comparable position as those applying the VAT margin scheme elsewhere in the UK. In addition, the Government will legislate, should a relevant agreement be reached with the EU, to extend the VAT margin scheme to apply in Northern Ireland on a limited basis in respect of motor vehicles sourced from Great Britain for the period until the Second-hand Motor Vehicle Export Refund Scheme is implemented. As a result, motor vehicles first registered in the United Kingdom prior to 1 January 2021 will be available to sell under the VAT margin scheme in Northern Ireland during that time period.
Air Passenger Duty (APD) – The Government has announced new APD rates from 1 April 2023. The first lower band is for flights within the UK. For the tax year 2023 to 2024, the rates for domestic flights will be £6.50 for those travelling in economy class, £13 for those travelling in all other classes, and £78 for those travelling on aircraft with an authorised take-off weight of 20 tonnes or more with fewer than 19 seats. The second is a new higher band for ultra long-haul flights for destinations with capitals located more than 5,500 miles from London. The economy rate for the ultra long-haul band will be set at £91, £4 greater than the long-haul band, £200 for those travelling in all other classes and £601 for those travelling on aircraft with an authorised take-off weight of 20 tonnes or more with fewer than 19 seats. The Chancellor said the reductions in the rates for UK flights were to boost regional airports and help people stay connected – in that case it is perhaps puzzling that these changes are not being implemented sooner. An increased tax charge for really long flights is also on trend with the green message – if you want to fly more than 5,500 miles from London in a heavy private jet you will need to find a significant extra sum to pay the APD.
Health and Social Care Levy – The previously announced 1.25 percentage point increase to employer’s National Insurance Contributions, to fund health and social care prior to the introduction of the separate Health and Social Care Levy, comes into force from 6 April 2022. As anticipated, the National Living Wage/National Minimum Wage will be increased so that employees aged 23 years and over will be entitled to £9.50 per hour for pay periods starting from 1 April 2022.
Pension tax relief for low earners in net pay arrangements – The take home pay of individuals with taxable income below the personal allowance can be affected by the method of tax relief operated by their pension scheme. In summary, employees contributing to Relief at Source (RAS) schemes receive a 20 percent top-up on their pension contributions, even if they pay no, or a lower rate of, income tax. In contrast, employees contributing to a Net Pay Arrangement (NPA) scheme receive relief at their marginal rate, which for those with taxable earnings at or below the UK personal allowance is nil. To address this anomaly, the Government will introduce direct top-up payments for affected NPA scheme members. These will start to be paid from 2025/26 in relation to contributions made in 2024/25 onwards.
Benefits in kind – The van benefit charge and fuel benefit charges for cars and vans will rise in line with the Consumer Price Index from 6 April 2022. A new Scale-Up visa will launch in Spring 2022 to help eligible growth businesses recruit key overseas talent who meet certain language requirements and have a salary of at least £33,000.
National Living Wage – As anticipated, an increase in the National Living Wage / National Minimum Wage rate, such that employees aged 23 years and over will be entitled to £9.50 per hour for pay periods starting from 1 April 2022; and
High-skilled migration – A new Scale-Up visa will launch in Spring 2022 to help eligible growth businesses recruit key overseas talent who meet certain language requirements and have a salary of at least £33,000.
If you would like to discuss any of these points please do not hesitate to contact your usual KPMG contact, or one of the following:
Simon Robinson (+44 7825 682425)
Steven Murdoch (+44 7920 593886)
Paul Stewart (+44 7801 522308)
Anne-Marie Robinson (+44 7748 321116)