Pre Budget Report – Few Surprises & Even Less Good News
10/12/2009
"The Chancellor has resisted calls to postpone the increase in VAT and in today's Pre Budget Report (PBR) he confirmed that the standard rate of VAT will revert to 17.5% from 1 January 2010", said Michelle Malone, ASE's VAT specialist. Although encouraging sales in December, when combined with the forthcoming end of the scrappage scheme and the effect of the new showroom tax to be introduced in April, this increase could provide a further disincentive for purchasing new vehicles next year.
With customers keen to obtain a lower VAT rate on their purchases, dealers must ensure that they fully understand how transactions spanning the rate change should be treated. HMRC have indicated that they will adopt a light touch approach to any errors arising, but assessments will surely follow.
Dealers should also not neglect the effect the VAT change could have on used stock they currently hold. If sales prices of these vehicles are not increased in January to compensate for the additional output VAT that must paid over to HMRC, profit margins will take a hit. Consequently dealers should carefully consider their stock purchasing levels prior to January and keep stock to a minimum to mitigate the negative effect of the rate increase.
ASE's tax director, Paul Brown said "The PBR also contained details of an increase in the benefit in kind charge for the provision of private fuel in company vehicles." The changes which take effect from next April increase the personal tax cost of private fuel and may mean that it is no longer cost effective for employees to receive this benefit. Further changes in 2011 will only add to these costs. Brown said "we would recommend that all dealers cast a critical eye over the car related benefits provided to employees as increasing fuel and tax costs could mean that giving private fuel to employees is no longer the right answer for either party."
Some positive measures were included in the Chancellor's speech as the proposed 1% increase in the small companies rate of corporation tax will now not be implemented next year.
The Chancellor has also announced tax breaks in relation to the purchase and use of electric powered cars and vans. From April next year the purchase of new electric vans will qualify for a 100% first-year allowance and there will be no benefit in kind charge for the use of electric vans and cars for a period of five years from this date. With most manufacturers continuing to invest in green technology an increasing number of vehicles should qualify for these measures over the next few years.
Brown concluded "while there was still some pain in the PBR, it may be the worst of it will be saved until after the general election."