Budget Statement: Spring 2021

In a Budget dominated by the Government’s responses to the COVID-19 pandemic, the Chancellor Rishi Sunak made small changes to company car taxation, in addition to the measures announced at Budget 2020.

Budget changes come into effect in April, and mean 100% electric cars with zero tailpipe emissions will cease to be exempt from BIK tax and become eligible at 1%. This rate rises to 2% in 2022-23 but remains at that level until April 5th 2025, making a strong case for company car drivers to select a zero-emission model prior to the UK ban on sales of all new petrol and diesel cars (except for some hybrids) in 2030.

Elsewhere, a RPI-linked rise in Vehicle Excise Duty for cars and sees only a modest increase in annual liabilities for 2021-22, with zero-emission cars and vans remaining exempt. A CPI-related increase in the Vehicle Benefit Charges for employer-provided ‘free’ fuel and BIK tax for company-owned vans used for private mileage, as well as a rise in VED for vans, joined a freeze on petrol and diesel duty for the 11th consecutive year.

Full explanations and guidance to the new BIK tax system are covered in this Ford Fleet Budget Guide, together with details of the other main announcements from the Spring 2021 Budget Statement.

1 In detail: Spring 2021 Budget Fuel: how diesel and Plug-in Hybrid compare

The table below shows how fuel choice affects the BIK tax payable by drivers in 2021-22, depending on whether they select a diesel or Plug-in Hybrid company car.

The figures show that choosing the Kuga Plug-in Hybrid will benefit drivers with a much lower BIK tax band and liability than for diesel in 2021-22.

Ford Kuga ST-Line Edition ST-Line Edition 1.5 EcoBlue 120PS 2.5 Duratec 225PS 5dr auto FWD (diesel)1 PHEV 5dr auto (petrol)3 P11D price £31,830 £36,500

CO2 emissions (WLTP) (g/km) 138 32 Combined mpg (WLTP) (mpg/l/100km) 51.4 – 54.3 (5.5 – 5.2) 201.8 (1.4)

BIK tax band 2021-22 31% 11%

BIK tax/month 2021-222 £164.46/£328.91 £66.92/£133.83

Annual BIK tax in 2021-222 £1,973.46/£3,946.92 £803.00/£1,606.00 1 RDE2-compliant. 2 For 20%/40% tax payers in 2021-22. 3 The Kuga ST-Line PHEV has a WLTP zero-emission range of 35 miles

Summary:

 Diesel Diesel represents the fuel type of choice when the lowest cost of operation is important and the fleet operates high mileages.

 Plug-in Hybrid Plug-in hybrid represents the fuel type of choice when the lowest CO2 and BIK are important and the fleet operators are mindful of ‘green’ credentials with higher levels of urban operation.

2 In detail: Spring 2021 Budget Vehicle Excise Duty

Budget 2020 announced a Call for Evidence on Vehicle Excise Duty, with a response closing date of September 3rd 2020. Results of the CfE have yet to be published, but are indicated to consider various measures to reform VED to encourage take up of lower-emitting vehicles.

VED rates for cars registered on or after April 1st 2017 are set out in the table below. New diesel cars that do not meet the Real Driving Emissions Step 2 (RDE2) standard are subject to increased first-year rates. Zero-emission vehicles with a list price exceeding £40,000 are also exempt from VED until March 31st 2025.

 First-year rate Applicable to all cars registered on or after April 1st 2018

 Standard rate (yr2 onwards) £155 – cars with CO2 emissions of 1g/km or over with a list price of £40,000 or less

 Additional rate (yr2 onwards) £490 – cars with CO2 emissions of 1g/km or over with a list price over £40,000. Cars with a list price over £40,000 and zero CO2 emissions are exempt from the additional rate until March 31st 2025.

Vehicle Excise Duty: rates for new cars registered on or after April 1st 2017 2021-22

CO2 First year rate First year rate Standard rate Additional rate emissions (compared for diesel vehicles1 (Yr2 on for (Yr2 on for (g/km) with (compared with cars with list price cars with list price 2020-21) 2020-21) of £40,000 or less) of over £40,0002) 0 £0 £0 £0 £0 1-50 £10 (+£0) £25 (+£0) £155 (+£5) £490 (+£15) 51-75 £25 (+£0) £115 (+£5) £155 (+£5) £490 (+£15) 76-90 £115 (+£0) £140 (+£5) £155 (+£5) £490 (+£15) 91-100 £140 (+£5) £160 (+£5) £155 (+£5) £490 (+£15) 101-110 £160 (+£5) £180 (+£5) £155 (+£5) £490 (+£15) 111-130 £180 (+£5) £220 (+£5) £155 (+£5) £490 (+£15) 131-150 £220 (+£5) £555 (+£15) £155 (+£5) £490 (+£15) 151-170 £555 (+£15) £895 (+£25) £155 (+£5) £490 (+£15) 171-190 £895 (+£25) £1,335 (+£30) £155 (+£5) £490 (+£15) 191-225 £1,335 (+£30) £1,895 (+£45) £155 (+£5) £490 (+£15) 226-255 £1,895 (+£45) £2,245 (+£70) £155 (+£5) £490 (+£15) Over 255 £2,245 (+£70) £2,245 (+£70) £155 (+£5) £490 (+£15)

1 Applies to diesels that do not meet the real driving emission step 2 (RDE2) standard. 2 Cars with a list price over £40,000, except those with zero emissions, pay an additional rate of £335 per year on top of the standard rate for five years. Alternative fuel cars, including hybrids, bioethanol and LPG, pay £150 a year. New rates apply from April 1st 2021

Vehicle Excise Duty: rates for cars registered on or after March 1st 2001 2021-22 rates are shown below.

VED CO2 2021-22 band emissions Standard rate (g/km) (compared with 2020-21) A Up to 100 £0 (+£0) B 101-110 £20 (+£0) C 111-120 £30 (+£0) D 121-130 £130 (+£0) E 131-140 £155 (+£5) F 141-150 £170 (+£5) G 151-165 £210 (+£5) H 166-175 £250 (+£10) I 176-185 £275 (+£10) J 186-200 £315 (+£10) K1 201-225 £340 (+£10) L 226-255 £585 (+£20) M Over 255 £600 (+£20) 1 Includes cars emitting over 225g/km registered before March 23rd 2006. 2021-22 rates apply from April 1st 2021

3 In detail: Spring 2021 Budget Company Car Tax

WLTP-based company car tax system Company car Benefit-in-Kind (BIK) tax is based on a car’s P11D value and emissions of CO2. For cars with zero tailpipe emissions of CO2 the BIK tax rate for 2021-22 is set at 1% of P11D value.

Cars registered before April 6th 2020 are taxed according to NEDC rules, with their rates frozen until the end of the

2022-23 tax year. New car registrations have a WLTP-derived CO2 figure recorded. For cars withCO 2 emissions of 1-50g/km, the number of miles they can cover with zero emissions has a significant bearing on tax liabilities (see the table below). The two tiers align in April 2022 and the rates are then held until March 31st 2025.

A further emissions test – Real Driving Emissions (RDE) – introduced as the first on-road test element for vehicle homologations, is designed to prove emission control systems are as effective in use as they are under laboratory conditions. The RDE Stage 1 compliance became part of the UK car tax system in 2018, phased in alongside WLTP, while RDE Stage 2 (RDE2) compliance became mandatory from January 1st 2021.

Currently, for diesel cars that do not meet the RDE2 standard, a 4% BIK tax charge applies, with the relevant percentages for these vehicles shown in brackets in the table below.

BIK tax percentages 2021-2022 2021-2022 2022-2025 CO2 Zero BIK % BIK % BIK % emissions emissions (NEDC1) (WLTP2) (All)3 (g/km) range (miles) 0 All 1 1 2 1-50 >130 2 1 2 1-50 70-129 5 4 5 1-50 40-69 8 7 8 1-50 30-39 12 11 12 1-50 <30 14 (18) 13 (17) 14 (18) 51-54 - 15 (19) 14 (18) 15 (19) 55-59 - 16 (20) 15 (19) 16 (20) 60-64 - 17 (21) 16 (20) 17 (21) 65-69 - 18 (22) 17 (21) 18 (22) 70-74 - 19 (23) 18 (22) 19 (23) 75-79 - 20 (24) 19 (23) 20 (24) 80-84 - 21 (25) 20 (24) 21 (25) 85-89 - 22 (26) 21 (25) 22 (26) 90-94 - 23 (27) 22 (26) 23 (27) 95-99 - 24 (28) 23 (27) 24 (28) 100-104 - 25 (29) 24 (28) 25 (29) 105-109 - 26 (30) 25 (29) 26 (30) 110-114 - 27 (31) 26 (30) 27 (31) 115-119 - 28 (32) 27 (31) 28 (32) 120-124 - 29 (33) 28 (32) 29 (33) 125-129 - 30 (34) 29 (33) 30 (34) 130-134 - 31 (35) 30 (34) 31 (35) 135-139 - 32 (36) 31 (35) 32 (36) 140-144 - 33 (37) 32 (36) 33 (37) 145-149 - 34 (37) 33 (37) 34 (37) 150-154 - 35 (37) 34 (37) 35 (37) 155-159 - 36 (37) 35 (37) 36 (37) 160-164 - 37 (37) 36 (37) 37 (37) 165+ - 37 (37) 37 (37) 37 (37)

1 2 Source: HMRC. Cars registered before April 6th 2020, which use NEDC CO2 figures. Cars registered on or after April 6th 2020, which use WLTP CO2 figures. Figures in brackets relate to non-hybrid diesels which are not certified as RDE2-compliant.3 Rates held at this level until March 31st 2025

4 In detail: Spring 2021 Budget Calculating company car tax

The calculation of company car tax is based on the car’s P11D price and CO2 emissions, its zero emissions range and whether or not it is a diesel. Diesel company cars that do not meet the RDE2 standard are subject to a 4% BIK tax charge. For cars with zero CO2 emissions, such as the Mach-E (see below), BIK tax in 2021-22 is set at 1% of P11D price. CO2 emissions figures for all Ford cars can be found atwww.ford.co.uk/shop/research/ brochure-download or the Vehicle Certification Agency atwww.vehicle-certification-agency.gov.uk .

Example: calculating company car tax Mustang Mach-E 88kWh 5dr Extended Range RWD

1 P11D price (March 2021) £49,925

CO2 emissions (WLTP) 0g/km BIK tax band (2021-22) 1% Taxable value £499.25 2021-22 monthly BIK tax (20%) £8.32 2021-22 monthly BIK tax (40%) £16.64

1March 2021. The vehicle price is the indicative Recommended Retail Price for this model. Please note tax figures are based on the P11D price at April 6th 2021 Capital allowances and lease rental restriction

The main rate capital allowance threshold is intended to be set at 50g/km2 in 2021-22, while the 100% first-year allowance (FYA) applies only to vehicles with zero emissions of CO2 (ZEV). Cars with CO2 emissions of 1-50g/km are eligible for an 18% write-down allowance (WDA), while a 6% WDA applies to cars with CO2 emissions of 51g/km or more. Leasing companies cannot claim the first-year allowance.

Zero-emission electric vans are eligible for a 100% FYA until March 31st 2025 provided the Government Plug-in Grant (PiVG) has not also been claimed, with all other vans eligible for an 18% annual capital allowance. A 100% FYA is also available until March 31st 2023 for companies investing in electric vehicle charge points.

Lease rental restriction In 2021-22, the CO2 emissions-based threshold applying to lease rental restriction is intended to be the same as for 2 capital allowances, at 50g/km . New cars with CO2 emissions of 50g/km or less are eligible for 100% of lease costs to be offset against tax, while for those withCO 2 emissions of 51g/km or more only 85% can be offset. From April 2021, the 50g/km threshold also applies for determining the lease rental restriction for costs of hiring business cars for more than 45 consecutive days. Class 1A NIC

The percentage used for the calculation of employers’ Class 1A National Insurance Contributions (NIC) on company cars and employer-provided ‘free’ fuel is set at 13.8% in 2021-22. To calculate annual Class 1A NIC, the car’s P11D price is multiplied by its BIK tax percentage and then by 13.8%.

For ‘free’ fuel, the Government Fuel Benefit Charge (FBC) – £24,6002 – is used. For hybrids, the number of zero-emission miles the car can travel has a significant bearing on tax payable. As electricity is not a fuel, 100% electric cars are exempt from Class 1A NIC in 2021/22 as there is no fuel scale charge.

Example: calculating Class 1A NIC – cars registered from April 6th 2020 Kuga ST-Line Edition 2.5 Duratech 225PS PHEV 5dr auto

P11D price (March 2021) £36,500

CO2 emissions (WLTP) 32g/km BIK tax band (2021-22) 11% 2021-22 Class 1A NIC (car) £36,500 x 11% x 13.8% = £554.07 2 2021-22 Class 1A NIC (fuel) £24,600 x 11% x 13.8% = £373.43

2Expected to be enacted in March 2021

5 In detail: Spring 2021 Budget Fuel allowances

Fuel duty is frozen for the tenth year in a row, while the Fuel Benefit Charge for calculating the tax due on employer- provided ‘free’ fuel for private use in a company car rises by the Consumer Prices Index to £24,6001. For hybrids, the number of zero-emission miles the car can travel has a significant bearing on tax payable. As electricity is not a fuel, there is no fuel benefit charge. This means that if an employer allows an employee to top up their 100% Battery Electric Vehicle (BEV), it does not qualify as a car fuel benefit charge. For other fuels, to calculate your tax liability if you receive the ‘free’ fuel benefit, you need to know:

 The car’s combined fuel consumption and Government Fuel Benefit Charge figure – £24,6001 in 2021-22  The driver’s marginal tax rate and the car’s BIK tax percentage  The price of fuel used

Examples: calculating the tax you pay on employer-provided ‘free’ fuel for private use

Kuga ST-Line Edition PHEV 2.5 Duratec 225PS auto Puma ST-Line 1.0 EcoBoost 125PS MHEV manual

Combined fuel consumption (WLTP) 201.8mpg Combined fuel consumption (WLTP ) 49.6mpg 1 1 Fuel benefit charge (2021-22) £24,600 Fuel benefit charge (2021-22) £24,600

CO2 emissions (WLTP) 32g/km CO2 emissions (WLTP ) 128g/km BIK tax band (2021-22) 11% BIK tax band (2021-22) 29% Annual BIK tax £24,600 x 11% x 20% = £541.20 Annual BIK tax £24,600 x 29% x 20% = £1,428.60 1 1 for 20%/40% tax payers £24,600 x 11% x 40% = £1,082.40 for 20%/40% tax payers £24,600 x 29% x 40% = £2,853.60 The average price of unleaded (March 2021) is £5.39/gallon (£1.19/litre). The average price of unleaded (March 2021) is £5.39/gallon (£1.19/litre). £541.20 will pay for around 100 gallons (454 litres) for a 20% tax payer. £1,428.60 will pay for around 265 gallons (1,204 litres) for a 20% tax payer. For a 40% tax payer the figure is 200 gallons (909 litres). For a 40% tax payer the figure is 529 gallons (2,404 litres). ‘Break-even’ mileage ‘Break-even’ mileage 20% tax payer 100 x 201.8 = 20,180 miles 20% tax payer 265 x 49.6 = 13,144 miles 40% tax payer 200 x 201.8 = 40,525 miles 40% tax payer 529 x 49.6 = 26,238 miles

If you drive fewer private miles than the calculated figures you will be better off paying for private fuel yourself as it will cost less than the tax you pay. On the other hand, if you drive more private miles, you are better off paying the tax.

1 Expected to be enacted in April 2021 Business mileage in a private car: reimbursement rates

The tax and National Insurance-exempt amounts claimable under the HM Revenue & Customs Approved Mileage Allowance Payments (AMAP) rates for business mileage in a private car are shown below. Electric and hybrid cars are treated in the same way as petrol and diesel cars. If your employer reimburses you at a lower rate than the AMAP rates, you can claim tax relief on the difference. Reimbursements made at a higher level than the AMAPs will incur tax.

Approved Mileage Allowance Payments (AMAP) rates 2021-22

Up to Over 10,000 miles 10,000 miles All cars 45p/mile 25p/mile

6 In detail: Spring 2021 Budget Company owned vans: BIK tax

The Van Benefit Charge (VBC) rate for drivers of company vans, including ‘double-cab’ pick-ups, who use their vehicles for private mileage is set at £3,500 from April 6th 2021. From the same date, the VBC for fuel provided for private use also rises from £666 to £669.

Example: annual BIK tax on company-owned vans with private use

New Ranger Wildtrak 2.0 EcoBlue 213PS 10 Speed Automatic 2021-22 20%/40% tax payers Annual BIK tax (ex fuel) £3,500 x 20%/40% £700/£1,400 Annual BIK tax (inc fuel) £3,500 + £669 x 20%/40% £833.80/£1,667.60

Employees using their vans to drive from home to customers, and who are not allowed other private use, do not pay BIK tax.

From April 6th 2021, the Van Benefit Charge applying to zero-emission vans falls to a nil rate of tax.

Company owned vans: Class 1A NIC

Annual Class 1A National Insurance Contributions for vans, including ‘double-cab’ pick-ups, are based on the Van Benefit Charge used for BIK tax calculations – £3,500 in 2021-22 (plus £669 if fuel is included). The amounts payable are calculated by multiplying the VBC by 13.8%.

Example: annual Class 1A NIC for vans

Fiesta Van Sport 1.0 EcoBoost 6sp manual 2021-22 Annual Class 1A NIC (ex fuel) £3,500 x 13.8% £483.00 Annual Class 1A NIC (inc fuel) £3,500 + £669 x 13.8% £575.32

Company owned vans: Vehicle Excise Duty

VED rates for 2021-22 are shown below. There was no further information on the consultation on reforming VED to incentivise van drivers to make the cleanest choices when purchasing a new van, which closed in September 2020 and has been delayed owing to COVID-19. Proposals included a 2-category approach, graduated by CO2 when the van is first registered, for small/medium and large vans, with a £0 standard rate for zero emission vans and an ongoing discount for ultra-low emission and other alternatively fuelled vans. The exact weight categories, CO2 bandings and rates will be announced ahead of introduction, once the impact of WLTP on the van market has been assessed. For further information, go to https://www.gov.uk/government/consultations/vehicle-excise-duty-for-vans.

Annual VED rates for vans in 2021-22 are shown below: 2021-22 (increment over 2020-21) Euro IV and Euro V vans registered on or after March 1st 2001 £140 (+£0) All other vans registered on or after March 1st 2001 £275 (+£10)

2021-22 rates apply from April 1st 2021

7 In detail: Spring 2021 Budget Plug-in Grants extended to 2022-23

In line with the Government’s Ten Point Plan for a Green Industrial Revolution, published in November 2020, UK sales of new petrol and diesel cars and vans will end by 2030 with exceptions for hybrid vehicles that can travel a significant distance with zero tailpipe emissions. The plan is backed by a £2.8 billion funding package, of which £1.3 billion is set to be invested in charging infrastructure over the next four years. £582 million of this will extend the Plug-in Car, Van, Taxi and Motorcycle Grant scheme to 2022-23, and the rollout of a fast-charging network of more than 2,500 high-powered chargepoints is pledged to be in place for electric vehicles, rising to 6,000 by 2035. Custom PHEV excels in ULEZ trial The Plug-in Grant is available only to Government- Nearly two years after the introduction of London’s Ultra-Low approved cars with zero emissions of CO costing less than 2 Emissions Zone (ULEZ), a study using 20 Transit Custom Plug-in £50,000. The maximum grant rate is set at £3,000 per car. Hybrid (PHEV) vans has revealed the potential for cleaner city air from hybrid electric vans. The Transit Custom PHEV features an In 2021-22, businesses acquiring new and unused cars that emit less than 50g/km of CO2, or zero emission vans, can benefit from enhanced capital allowances, with a 100% write-down allowance in the first year of ownership. This benefit also extends to recharging or refuelling infrastructure for hydrogen-powered vehicles.All ULEVs are also eligible for the Electric Vehicle Homecharge Scheme (EVHS), which covers up to 75% of the cost of installing a charge point at home, capped at £350 including VAT.

Grant availability Only cars, motorcycles and scooters that are 100% advanced hybrid powertrain that targets a zero-emission driving electric-powered are eligible for the grant. Go to range of 31 miles and uses the Ford 1.0-litre EcoBoost petrol engine www.gov.uk/plug-in-car-van-grants for a list of as a range extender for total range exceeding 310 miles. government-approved grant-eligible vehicles.

The trial – supported by a £4.7 million grant from the UK Government-  Grant-eligible cars: Government-approved cars priced funded Advanced Propulsion Centre – tested whether businesses below £50,000 with zero CO2 emissions are eligible to could carry out the typical daily duties of their diesel-powered vehicles receive a grant of up to £3,000. while maximising the use of zero-emissions electric-only mode.

 Taxis: taxis with CO2 emissions of less than 50g/km and Participants – including Addison Lee Group, British Gas, Clancy Plant, a zero-emission range of at least 70 miles benefit from DPD, the Metropolitan Police, Royal Mail, Transport for London and a maximum grant of £7,500. Vodafone – integrated the PHEV vans into their operations and covered more than 240,000 km (150,000 miles)  Motorcycles: motorcycles with CO2 emissions in real-world driving. 75% of Central London mileage, and 49% in of 0g/km and a range of at least 31 miles (19 miles for Greater London, was driven on zero-local-emission electric power. mopeds and scooters) between charges benefit from The results highlight that the hybrid vans were able to dramatically a maximum grant of £1,500. reduce tailpipe emissions in the inner city*.

 Vans: vans with CO2 emissions of under 75g/km and Commercial vehicles in London already make 280,000 journeys a zero-emission range of at least 10 miles benefit from on a typical weekday, travelling a total of eight million miles. Vans a maximum grant of £8,000. represent 75 per cent of peak freight traffic, with more than 7,000 vehicles per hour driving at peak times in Central London alone. Go to www.gov.uk/government/organisations/office- for-zero-emission-vehicles for further information on *Transit Custom Plug-In Hybrid WLTP CO2 emissions from 70 g/km. Tourneo Custom the Plug-in Grant scheme. Plug-In Hybrid WLTP CO2 emissions from 81 g/km

The explanations and data set out in this Guide are provided for general information only. Though given in good faith, the information is provided without any warranty as to its accuracy. Please refer to your legal or tax adviser for individual professional advice. All information correct at date of compilation, March 3rd 2021. The model imagery shown in this document may not reflect the latest UK specifications, colour may vary, options and accessories may feature at additional cost. The quoted fuel/energy consumptions, CO2 emissions and electric range are determined according to the technical requirements and specifications of the European Regulations (EC) 715/2007 and (EU) 2017/1151 as last amended. Light Duty Vehicles type-approved using the World Harmonised Light Vehicle Test Procedure (WLTP) have Fuel/Energy Consumptions and CO2-Emission information for both New European Drive Cycle (NEDC) and WLTP. WLTP is a new, more realistic test procedure for measuring fuel consumption and CO2 emissions and will fully replace the NEDC by the end of 2020. The applied standard test procedures enable comparison between different vehicle types and different manufacturers. In addition to the fuel efficiency of a car, driving behaviour as well as other non- technical factors play a role in determining a car’s fuel/energy consumption, CO2 emissions and electric range. A guide to fuel economy and CO2 emissions which contains data for all new passenger car models is available at https://carfueldata.vehicle-certification-agency.gov.uk/.

8 In detail: Spring 2021 Budget