Chancellor George Osborne’s 2016 Budget, which he repeatedly said put ‘the next generation first’, contained news of a freeze in fuel duty for the sixth year in a row, further details of investment in autonomous driving and the roads infrastructure, and confirmation of increases in company car tax for the next three years.

Fuel Duty

The move means that the main rate of fuel duty will remain at 57.95 pence per litre for 2016-17 with pump prices now 18 pence per litre lower than they would have been if the government had maintained pre-2010 fuel duty escalator plans.

Enhanced capital allowances and first year allowances (FYA)

The Budget also announced measures it said would support transition in the UK to cleaner zero and ultra-low emission vehicles, which will help improve air quality in the UK’s towns and cities and protect the environment for the next generation.

This included extending the 100% First Year Allowance (FYA) for businesses purchasing low emission cars (currently sub 75g/km) for a further three years to April, 2021.

However, the main rate threshold for capital allowances for business cars will be reduced from 130g/km to 110 g/km of CO2 and the FYA threshold from 75g/km to 50g/km of CO2 from April 2018, to reflect falling vehicle emissions.

In addition for businesses that procure cars through a lease arrangement will suffer a disallowance of 15% of the finance rental (inc unreclaimable VAT) against corporation tax liability.

Company Car Tax BIK Rates 2016-2020

As signposted previously by the Chancellor, company car tax is set to go up by 2% for each of the next three years for all cars emitting more than 75g/km CO2, up to a maximum of 37%. Moreover in 2019-20 it will go up by a further 3% and the 3% diesel surcharge that was due to be abolished for 2016/17 has been retained until at least April 2021.

This hike in BIK will result in a significant increase in employee cost over the next 4 years and as such company car drivers should therefore think very carefully about their next choice of vehicle, or evaluate the viability of opting out of their company car scheme for a cash alternative if this option is open to them.

Bizarrely the government has included ultra-low emission cars (ULEV’s) in this BIK increase, resulting in a sub 75g/km car rising in tax from 5% to 16% in this time frame.

Vehicle Excise Duty

In last July’s Emergency Budget, the Chancellor announced details of a new VED system from April 2017 which will be used for a roads fund by the end of the decade, a move which was confirmed in this Budget.

While there will be an inflation-linked increase to VED for existing cars until April next year, for all new cars the duty in the first year thereafter will be set according to emissions, like today, but updated for new technology. At that point, there will be three duty bands – zero emission, standard and premium.

For standard cars – which covers 95% of all cars sold in the UK – the charge from 2017 will be a flat rate £140 a year. This is less than the average £166 that motorists pay today, but the new system is expected to only raise the same amount of revenue as today.

Car and van fuel benefit charge 2016-17

From April, the Fuel Benefit Charge goes up to £22,200 for cars and £598 for vans, in line with the Retail Prices Index (RPI) for both classes of vehicle. The van benefit charge – that paid for employees with private use of a vehicle – rises by £20 to £3,170, again in line with the RPI.