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BBC NEWS briefing. More
Update on fuel duty and VAT with rising fuel costs
With rising motor fuel prices
in the UK, a consequence is the UK Government's "tax take"
from the extra VAT on fuel sales is increasing. In an article in the
16th March 2022 their analysis suggests that the "UK Treasury
stands to make up to £2.9 billion more from motorists in a tax
windfall due to record petrol and diesel prices". The Chancellor
is reported to have rebuffed calls from Members of Parliament yesterday
to use his Spring Statement next week to cut fuel duty. Other European
countries, including France, Germany and Ireland have either announced
plans for a temporary cut in fuel duty or have plans to do so.
The RAC has
calculated that at current fuel prices, motorists are paying at least
7p more in VAT for every litre of petrol than they were in 2019. The
RAC has said that "it seemed wrong that the Treasury gains nearly
£3 billion extra in VAT this year - after all when it comes
to VAT on petrol and diesel sales, it's a tax on tax because there
is already fuel duty of 57.95p a litre which itself brings in £27
billion a year". The RAC strongly urged the Chancellor to
take action by cutting fuel duty or reducing VAT.
A Treasury spokesman said "VAT receipts this year are forecast
to be £2 billion below the amount collected directly before
the Covid pandemic. To keep costs down, fuel duty has been frozen
for the 12th year in a row, which will save drivers £15 every
time they fill up their tank compared to pre-2010 plans"
for regular increases.
Breakdown of the price of standard petrol in UK
review - serious concerns over inflation and the rise in the
cost of living
With the combination of steep rises is energy costs, National Insurance
bills rising from April and motor fuel costs rising, the spiralling
cost of living in the UK will continue pushing the headline monthly
inflation figures well above the Bank of England's (BoE) target
and see pressures for wage increases in many sectors, We will be
looking for the updated pedications on key features likely to appear
in the Chancellor's Statement will come from the usual sources like
firms like BDO. BDO predications
Amid warnings that fuel prices could stay near record levels and
quite likely rise further, the Chancellor is being urged to take
action to help motorists and businesses across the country. There
will be strong pressure for not only continuing the fuel duty freeze
(it has been frozen for 11 years) but also with petrol and diesel
prices soraing there is already strong pressure for cutting the
rate of fuel duty and associated taxes and VAT thereon.
It's worth noting that without any reference to an extension from
the Chancellor the fuel duty freeze will automatically end. That's
because existing legislation around fuel duty stipulates how much
it goes up by each year. Fuel duty is 57.95p per litre of petrol
or diesel in the UK and the rate has been frozen for 11 years
by successive Conservative chancellors.
UK public warms to road pricing - reform of motor taxes
With an increasing rate of take-up of electric cars and the
retirement of petrol and diesel cars - so measures for replacing
fuel duty are likely to appear in the Autumn Budget 2022. The Government's
ban on the sale of new petrol and diesel vehicles from 2030 has
made reform of motor taxes an urgent question for the Treasury
because the switch to electric cars means almost £30bn in
fuel duty raised annually for the Treasury will need to be replaced.
But politicians have shied away from introducing road pricing as
an alternative, however polling for the Social Market Foundation
suggests that the conventional political wisdom that voters are
opposed to road pricing no longer holds true. Its research found
that 38% back road pricing to replace fuel duty and other taxes,
with just over a quarter opposed (26%). The rest were open to persuasion,
the SMF said, and shared a strong public perception that fuel duty
was a heavier burden than other taxes.
The sales trend for electric vehicles (EVs) is significant - last
month sales of battery electric cars reached a record 33,000, about
15% of all new vehicles sold in the UK in September, including almost
7,000 Tesla Model 3s. But EVs remain a small fraction of all cars
on UK roads, currently between 1% and 2% of all cars on UK roads.
VED exemption for classic cars
The rolling 40 year exemption will hopefully not be removed but
it's unlikely efforts to get it extended to a rolling 30 year concession
will be considered at this time by the Chancellor. More
Capital Gains Tax changes
Unlike other types of investment assets, the profit you make upon
the disposal of a classic car does not generally attract Capital
Gain Tax (CGT). This is because cars are generally classed as a
asset that is estimated to have less than 50 years
worth of use remaining. Even if the vehicle remains in existence
for a period in excess of those 50 years, the same exemption applies.
The tax is paid when people
sell assets such as shares or a second home. There are rumours that
the current CGT rates may be tinkered with and it's been suggested
that CGT rates could be aligned more closely with income tax rates,
which could mean scrapping the current CGT rates of 10% and 20%
(or 18% and 28% for property) and instead making everyone pay income
tax rates on their gains. A report by the Office of Tax Simplification,
published in November 2020, recommended that CGT rates should be
increased to bring them into line with income tax. But it would
be unlikely to raise significant extra amounts of tax, as it is
typically paid by only about 275,000 taxpayers and raises less than
£10bn a year.
There has been much political discussion about a one-off wealth
tax to help pay for the huge debt built up by the UK Government
providing various levels of COVID support measures. Some would prefer
to see a more permanent wealth tax and others firmly against it
but there are very few examples of wealth taxes that work well and
over the last few decades many have been abandoned. The UK already
has two ways in which to tax assets; capital gains tax and inheritance
tax. Both of these regimes are far from perfect, but it arguably
makes more sense to deal with some of the flaws in those two regimes
rather than introduce a third asset tax. The
UK Government has already discounted a one-off wealth tax so, although
the conversations may well continue, but KPMG
say they "would not expect the introduction of a wealth tax
during this Government. But never say never!".