U-turn eliminates ‘useful tax cut’ for thousands of British drivers

Martin Lewis gives money-saving advice on VED car tax

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The new Chancellor Jeremy Hunt scrapped almost all of Liz Truss’ economic plans, which were only unveiled a matter of weeks ago. Mr Hunt warned the UK faces “short-term difficulties” following the previous mini-budget delivered by then-Chancellor Kwasi Kwarteng.

Matthew Walters, head of consultancy services at LeasePlan UK, reacted to the Chancellor’s statement and commented on what it would mean for drivers.

He told Express.co.uk: “Reducing the basic rate of income tax from 20 percent to 19 percent would have offered a welcome five percent reduction in Benefit-in-Kind for around 300,000 company car drivers from April 2023. 

“That amounts to an annual saving of between £50 and £100 for a typical petrol, diesel or hybrid vehicle.

“Although small, that would have offered a useful tax cut for households who are already facing rising living costs. 

“Especially as ongoing shortages of semiconductors and other critical components have left many of them waiting a year or more for low-CO2 electric and plug-in hybrid cars. 

“Often while still driving a vehicle in a much higher Benefit-in-Kind band.”

Many in the industry have called on the Government to help clarify Benefit-in-Kind tax bands to help businesses plan for the future, with electric vehicles at the forefront of the plans.

At present, BiK rates have been announced as far as the 2024 and 2025 tax year.

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This will see motorists with electric cars through their company pay just two percent BiK tax on the vehicle, following a one percent rise this past April.

Most plug-in hybrid vehicles also pay a reduced rate of between two and 14 percent.

In comparison, the highest polluting vehicles like larger petrol and diesel models, face tax rates as high as 37 percent.

Mr Walters continued, saying: “The Chancellor has also signalled that changes to the 20 percent income tax rate will be delayed ‘indefinitely’, which follows last week’s U-turn on the 45 percent band. 

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“In the meantime, choosing a plug-in hybrid or electric vehicle is the most effective way for company car drivers to minimise their tax burden during a period of rising living costs. 

“These can offer up to a 90 percent saving compared to a petrol, diesel or hybrid alternative.”

Many in the automotive industry have called on the Government to implement changes to further help drivers.

One of the key sticking points is whether there will be any more changes to fuel duty.

In March, the then-Chancellor Rishi Sunak announced that the Government would cut fuel duty by five pence per litre.

At the time, petrol prices were 167.03p per litre and diesel drivers were seeing average costs of 178.97p.

Currently, petrol is around 2.5p cheaper per litre, while diesel has started to rise again to almost £1.86.

Mr Sunak’s fuel duty pledge was due to last a year, with many urging the Government to extend the fuel duty cut further to help drivers.

Other European countries like France, Germany and Spain have implemented larger and more long-term solutions to cut fuel duty.

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