THE CHANCELLOR should have left you in little doubt: your business motoring costs are going to rise following Alistair Darling’s Pre-Budget Report.

The Chancellor confirmed that VAT will increase to 17.5% from 01 January 2010, which will increase the cost of fuel, for example. This will put paid to any benefits from the recent increase in the Advisory Fuel Rates for company car drivers (see story).

Meanwhile the Chancellor also confirmed the 1p per litre rise in fuel duty from 01 April 2010. It will increase a further 1p per litre each year to 2013, placing increased pressure on business motoring costs, particularly those of van delivery firms. At the same time there has been no increase in the value of AMAP payments for those drivers who use their private car for company business: this remains at 40p per mile for the first 10,000 miles – as it has done since 2002.

The fuel duty multiplier will also increase from £16,900 to £18,000 for company car drivers who take free fuel; for van drivers, the fuel benefit charge increases from £500 to £550.

Further down the line from April 2012 company car tax rate bands will be shifted down by 5g CO2 per km while the graduated table for company car tax bands will be extended downwards to a new 10% band for cars emitting 99g/km CO2. The 3% diesel surcharge remains. From 2011 the National Insurance rate increases by a further 0.5% which will increase the cost of business cars for employers.

Company car tax and electric cars

If you fancy an electric business car, company car tax will be reduced to zero for a period of five years, starting 06 April 2010. Electric vans will also be exempt from company van tax for the same period. Class 1A National Insurance contributions will also be waived. Electric vans will also qualify for 100% first-year allowance for companies that purchase electric vans, enabling businesses to offset the cost against their corporation tax bill in year one.

The chief executive of the British Vehicle Rental and Leasing Association (BVRLA), John Lewis said: “We are really pleased that the Chancellor has given a clear, long-term incentive for companies willing to be early adopters of electric cars and vans. Together with the £2,500-£5,000 incentive the government is planning to introduce from 2011 for people buying ultra-low carbon cars, these new measures will help speed-up the mass market adoption of sustainable road transport in Britain.”

Mr Lewis continued: “We believe business users will be at the forefront, but all this depends on manufacturers swiftly coming to market with attractive, affordable, reliable and safe electric vehicles.”

If electric cars and vans are too far into the future, the Chancellor made some important provisions that will really help small businesses. The Chancellor held off the planned rise in the rate of small business corporation tax – which stays at 21% – while also extending the enterprise finance guarantee scheme.

Perhaps just as importantly the Business Payment Support Service will continue indefinitely. The Service allows businesses more time to pay tax bills to provide greater liquidity – already 160,000 businesses have deferred £4bn of tax payments. It had been feared that many small businesses would go bust at the start of the year had this facility been ended.

OUR RATING OF THE CHANCELLOR’S PRE-BUDGET REPORT

Good

• Small business corporation tax rate – held at 21%
• Business Payment Support Service – tax deferment will keep more small businesses trading
• Enterprise Finance Guarantee – additional £500m credit for SME firms in 12-month extension
• Company car tax bands shifting downwards – we knew this was coming. You must make your business car decisions based on CO2 emissions

Indifferent

• Zero company car tax on electric vehicles – if you find a decent one at the moment
• Zero company van tax on electric vans – sounds good, but because of recharging requirements most will be return-to-base, so any private use unlikely

Bad

• VAT rise – more bureaucracy, increases price of fuel for those who can’t reclaim VAT on fuel
• Fuel duty rise– for businesses on the road, this just makes life even more difficult
• Fuel duty multiplier – free fuel looks very expensive
• No change in AMAP rates – value of payments continues to be eroded

Verdict

Business motoring: the future’s looking more costly.

Further information

There’s additional commentary in the Editor’s Blog Pre-Budget Report Verdict.