Budget 2024: Full expensing for leased assets and fuel duty frozen

Vehicle leasing companies will benefit from so-called full expensing after the Chancellor, Jeremy Hunt, announced he will publish draft legislation for full expensing to apply to leased assets in the Budget.

Last autumn, he made the tax break for businesses investing in plant and machinery, including trucks and vans, permanent.

Companies were effectively rewarded with up to 25p off their tax bill for every £1 that they invest, which amounted to a tax cut of over £10 billion per year, according to the Treasury.

However, cars remained exempt from this scheme as were vehicles that were bought with the intention that they will then be leased. 

It is not clear whether cars will still remain exempt, but the legislation will now give the tax break to leasing companies for vans and trucks they fund.

However, the measure did come with the caveat from the Treasury that it would be introduced when "fiscal conditions allow".

Stephen Haddrill, director general of the Finance and Leasing Association (FLA), said: “It’s excellent that the Government recognises that leasing is the funding route of choice for many businesses and makes a vital contribution to investment.

"We welcome this transformative move. Its affordability will be covered through increased investment and higher productivity, and its introduction should be as fast as possible."

The British Vehicle Rental and Leasing Association (BVRLA) estimates that the landmark shift in Government tax policy is poised to unlock up to £1bn worth of additional investment in commercial vehicles.

BVRLA chief executive, Gerry Keaney, labelled the commitment to extend full expensing to the rental and leasing sectors as a "monumental step forward to rectify an historic injustice".

He continued: "The BVRLA has been an active voice in achieving this change and welcomes the opportunity to engage further in delivering this long overdue alignment in tax policy.”

Victoria Price, managing director of Alvarez and Marsal Tax, says that introducing full expensing on leased assets will be welcomed by many businesses as it was seen as an anomaly when the announcement was first made.  

“Many businesses simply can’t afford the outlay of expensive equipment up front,” she added. “Leasing is a cost-effective way for UK businesses to acquire assets.  

“This will also allow flexibility to ensure that UK businesses can keep upgrading to cutting edge technology and green technology without having to buy assets outright so could pave the way to keep us on the front foot in that regard also.”

Fuel duty frozen

Hunt also announced that fuel duty will remain at its current rate and be frozen for the next 12 months. He will also extend a "temporary" 5p cut on fuel duty which was due to end this month.

With fleets facing record pump prices at the start of 2022, fuel duty was cut by 5ppl in by the then Chancellor, Rishi Sunak, after being frozen at 57.95ppl since 2011.

The Government used last year’s Budget to freeze the main rate again – and extend the temporary cut up until the end of this month (March 2024).

Fuel duty is currently levied at a flat rate of 52.95p per litre for both petrol and diesel, while VAT at 20% is then charged on both the product price and the duty.

The freeze on fuel duty is expected to cost the Treasury £5bn.

Matthew Briggs, CEO at fuelcard provider, Right Fuel Card, was not surprised by the announcement of a continued fuel duty freeze and an extension of the 5-pence-per-litre price cut.

Nevertheless, he said: “We had hoped for a further price reduction in an attempt to help motorists at the pumps.

“February saw pump prices climb once again and reach the highest monthly increase in five months.

“With customers still facing uncertainties around food and energy costs, it’s positive that the Government has continued the fuel duty freeze and extended the 5p per litre price cut even further in a bid to combat these fluctuating costs.”

He added: “Whilst overall fuel prices are out of the government’s hands, we’d hope that consumers and business owners will see a more positive impact than what we’ve seen recently. We’re also keen to see more consistent pricing by retailers and less of a postcode lottery.”

Company car tax

Fleet decision-makers were given future benefit-in-kind (BIK) tax rates up until April 2028 by Hunt in the 2022 Autumn Statement.

Company car drivers receiving a new vehicle today know the tax it will attract over the next four years – a typical fleet replacement cycle.

However, Fiona Howarth, CEO of Octopus Electric Vehicles, argues that BIK rates beyond 2028 were needed for consumer confidence, particularly around salary sacrifice. 

“Salary sacrifice has supercharged the UK’s transition to electric driving, making electric cars cheaper than their petrol equivalents," she said. 

"Clarity around low benefit-in-kind tax rates for EVs beyond 2028 is critical for consumer confidence and to keep up the momentum in the EV roll-out. Not clarifying the rates in the Budget is a missed opportunity."

She added: “Following the recent 2035 rollback, drivers need clarity, not confusion, on tax rules to help make the decision to switch to an EV. Salary sacrifice is the most cost effective and easiest way to get a new EV, and demand has been through the roof. 

“In the last year, Octopus has delivered over 10,000 vehicles, with 4,500 businesses signed up to offer their staff a brilliant sustainable benefit.

"Leasing through salary sacrifice can help drivers upgrade their cars, improve their driving experience, enjoy the latest tech and save money on fuel, and on top of that they can also switch out after a few years for the latest tech.

“We’re on a journey to zero emissions transport, and through cost saving schemes like salary sacrifice, we can keep up the pace.”

Disappointment at lack of EV support

There was disappointment from many in the sector with the Chancellor ignoring calls to help drive EV adoption rates.

Mike Hawes, chief executive of trade body the Society of Motor Manufacturers and Traders (SMMT), says support was welcomed for EV development and manufacturing – including £2.1bn in the autumn’s Advanced Manufacturing Plan – but there was "little to help consumer demand" in the Budget is, labelling it a "missed opportunity" to deliver fairer tax for a fair transition.

"Reducing VAT on new EVs, revising vehicle taxation to promote rather than punish going electric, and an end to the VAT ‘pavement penalty’ on public charging would have energised the market," he said. 

"With both Government and industry having statutory requirements to deliver net zero, more still needs to be done to help consumers make the switch.”

James Taylor, managing director of Vauxhall, also claimed that the Budget had failed to deliver the acceleration needed to stop the UK’s transition to electric vehicles from stalling. 

“If we are to meet the rightly ambitious targets laid out in the Government’s Zero Emission Vehicle mandate (80% of all cars sold to be electric by 2030) then there needs to be incentives for private car buyers to make the switch to electric as there are in the majority of European nations," he said. 

“Vauxhall will already offer its entire car and van line-up as electric by the end of this year and has a number of highly competitive offers available but we cannot drive demand alone. 

“Whilst there are strong incentives for company car drivers to make the switch to electric – including for those choosing luxury vehicles – the private buyer who wants a more attainable small or family car receives nothing. 

“Furthermore, if you can charge your electric vehicle at home with off-street parking then you will pay 5% VAT on your electricity. If you don’t have a driveway and rely on public chargers then you will pay 20% VAT on your electricity." 

Vauxhall is calling on the Chancellor to urgently set up purchase incentives to stimulate the EV market and review the "unfair taxation" on public charging so that the UK isn’t left behind in the race to more sustainable motoring.

"The UK Government needs to urgently set up purchase incentives to stimulate further retail demand for electric vehicles," Eurig Druce, Stellantis UK

Fiat UK MD, Damien Dally, also said it was "disappointing" that the Chancellor failed to reinstate financial incentives for EV buyers in the Budget.

He explained: “While the extension of a 5p cut and freeze in fuel duty for the next 12 months will be welcome news to motorists, it’s estimated the cost to the Treasury will be around £5bn to implement.

“The Government has missed an opportunity to ringfence some or all the money that would have come from the fuel duty rise and invest it into this country’s seemingly dwindling electric vehicle strategy.

“The Government has set the direction of travel by enforcing the Zero Emission Vehicle (ZEV) Mandate and net zero target, but is doing nothing to incentivise retail customers to drive electric vehicles. 

“The numbers don’t lie, private sales account for fewer than one in five electric car registrations in 2024 – and the overall market share is way below the 22% mandated by the Government as part of the ZEV Mandate." 

He added: “The demand for electric vehicles is waning and we are sleepwalking into an electric vehicle crisis. The Government is also potentially putting its net zero target at risk. 

“Without any Government financial incentive, there’s no reason for the consumer to make the switch.”

Stellantis, parent company of both Fiat and Vauxhall, as well as Citroen and Peugeot, was similialry unimpressed with the lack of any new support for EV customers or those intending to purchase a new zero-emission vehicle.

Eurig Druce (pictured above), vice-president of sales at Stellantis UK, said: "Stellantis is a major UK manufacturer and we are bringing more and more electric vehicles to market, but we alone cannot drive demand.

"The UK Government needs to urgently set up purchase incentives to stimulate further retail demand for electric vehicles and help more customers switch to electric."

He added: "The Government has set the direction of travel by introducing the zero emission vehicle mandate but is not supporting or incentivising private customers to drive electric vehicles.”

The BVRLA's Keaney argues that at a critical time for the transition to zero-emission vehicles, "no news is bad news". He explained: "We heard nothing on charging, VED, benefit in kind, VAT on public charging, grants for electric vans, or a consumer education campaign. The Chancellor is leaving our sector in limbo.

“The Government needs to be braver in unlocking the billions of pounds in zero emission investments required across the whole road transport sector, from fleets, small businesses and private motorists."

Philip Nothard, insight director at Cox Automotive, also believes that the Budget will be disappointing to both current and would-be EV drivers and automotive generally.

"We had hoped that the Government would address the VAT discrepancy between domestic and public charging," he said. "Steps taken in that regard would have been both affordable and logical.

“Having said that, measures that put money back in the pocket of the average consumer, as the fuel duty freeze and national insurance cut do, clearly help our sector. This was a Budget designed to win votes in an election year, but one with zero incentives to further push zero-emission motoring.”

National insurance cut again

With a general election looming, the Government has reduced the base rate of class 1 employee national insurance contributions (NICs) by a further two percentage points after announcing a 2p in last year's Autumn Statement. 

It means the main rate falls from 10% to 8%, saving the average worker around £450 a year.

The Government is also cutting a further 2p from the main rate of self-employed national insurance on top of the 1p cut announced at Autumn Statement 2023.

This means that from April 6, 2024, the main rate of Class 4 NICs for the selfemployed will now be reduced from 9% to 6%.

Combined with the abolition of the requirement to pay Class 2, this will save an average self-employed person on £28,000 around £650 a year.

Furthermore, the Chancellor announced that the Government will launch a consultation later this year to deliver its commitment to fully abolish Class 2 National Insurance.

This follows the announcement at Autumn Statement 2023 that from April 2024 no self-employed person will be required to pay Class 2, while those who pay voluntarily will continue to be able to do so to build entitlement to contributory benefits.

The Government says it remains committed to reforming this complex part of the tax system while ensuring that low-income self-employed individuals will not pay more.

Economic backdrop

The Office of Budget Responsibility (OBR) says that gross domestic product (GDP) will be marginally higher this year at 0.8%.

Economic growth will then be better than the OBR previously expected in 2025 at 1.9% next year – 0.5% higher than the OBR’s autumn forecast – and at 2% the following year.

In 2027, the OBR predicts that the economy will grow by 1.8% and again by 1.8% in 2028.

For further reaction to the Chancellor's Budget, click here.