A greener and more globally competitive automotive sector

The Autumn Budget confirmed additional funding to support the government’s commitment to end the sale of new petrol and diesel cars and vans in 2030 and all-new diesel vehicles by 2040.

Details included:

• £6.1bn investment to reduce transport emissions – includes £620m of new funding for public charge points and targeted zero-emission vehicle grants, on top of the £1.9 billion committed previously.
• £817m investment in the production of electric vehicles and giga-factories in northeast England and the Midlands.
• The government is taking advantage of the transformative shift to a greener economy through the net-zero hydrogen fund. The fund will continue to support the Holyhead hydrogen hub in Wales to produce and distribute green hydrogen made using renewables for use in HGVs, helping to decarbonise high carbon-emitting transport.
• The planned rise in Fuel Duty has been cancelled given the current increase in fuel prices. Future fuel duty rates will be considered in the context of the UK’s commitment to reach net-zero emissions by 2050, potentially stimulating future demand for electric cars.
• £3.8bn increase in skills spending, including a £2.7bn increment for apprenticeship funding in 2024/25.

The above initiatives will be a critical acceleration in the path to net-zero. They will help encourage drivers to transition to more environmentally friendly forms of transport such as electric cars. Investment in charging points is an infrastructural necessity if we embed electric cars into our everyday lives. The government continues to lead internationally in enabling the transition to happen.

The following measures can also be expected to have an impact on businesses operating in the Automotive sector:

Corporate Tax

The following more general corporate tax changes were announced:

1) Research & Development (“R&D”) tax relief reform to support modern research methods by updating qualifying software expenditure to include data and cloud computing costs, a key area of development costs. 

The Chancellor also suggested that the UK Government’s innovation strategy and investment (e.g., grant support) may become more UK-centric in nature post-Brexit. Additional detail is needed. However, it is likely that support for R&D tax relief may be more closely aligned to innovation activities undertaken in the UK only.  

Businesses in the Automotive sector are in a disruptive transition involving pressure for ‘green’ engineering, reducing operational costs, improved connectivity, autonomous vehicles, and electromobility. They can benefit tremendously from R&D tax relief on qualifying projects in those areas.

For more and more OEMs and supporting businesses in the sector, cloud environments (rather than onsite server environments) and data streams are becoming more critical, especially with the increased focus on GDPR, cybersecurity and ransomware protection. As such, this additional R&D support, already one of the most generous in the G20, is timely and very welcome for the sector.

The new measures are likely to become effective from April 2023.

2) A UK government consultation on making it possible for companies to re-domicile so that it is easier to relocate to the UK.  This aims to strengthen the UK’s position as a global business hub, especially in light of its competitive tax system, with tax rates remaining one of the lowest in the G20. The closing date for responses is 7 Jan 2022.

Notification of uncertain tax treatments

The previously issued draft legislation for notification of uncertain tax treatments has been reconsidered and now includes only two triggers where a £5m threshold is met:

• a provision made in the accounts for the uncertainty or
• the interpretation taken by the group is contrary to HMRC’s known position.

The removal of the third trigger (concerning a difficulty to assess the condition of whether there would be a substantial probability that a Court or Tribunal would take a different view) will make the practical implementation of this new rule much easier to administer for everyone. This reporting requirement will apply for filings made from 1 Apr 2022, i.e. corporation tax returns for the period ended 30 Apr 2021, VAT returns for the quarter ended 28 Feb 2022, RTI submissions for the period to 5 Apr 2022 and subsequent returns.

Plastic Packaging Tax (“PPT”) 

The Autumn 2021 Budget resulted in some technical changes in how the PPT, a new tax due to come into force from 1 Apr 2022, will be managed/administrated.  

PPT is aimed at UK businesses that create or import plastic packaging that does not comprise a minimum of 30 per cent recycled plastic. Proposed as a flat rate of £200 per tonne of qualifying plastic packaging for those exceeding a 10-tonne threshold, the PPT is likely to have a knock-on effect right down the supply chain, with businesses in the sector passing on additional costs to their direct customers.

Business rates

The headline news is a 50% reduction in business rates (capped at £110,000) for 12 months.  That will provide some relief for dealers still recovering from the impact of Covid-19 by helping them lower costs.

In addition, business rates will be reviewed every 3 years instead of 5, and the planned increase in the multiplier will be frozen. From 2023, businesses will be able to make property improvements and be exempt from paying extra rates for 12 months. These measures are in response to the business rates review and consultation, which is now concluded.

New visa systems

The government has announced a new Scale-up visa as part of its Innovation Strategy, aimed at “opening the UK’s borders to top talent.” The route will be open to people who have a job offer in the UK from a “scale-up” company – that is, a company that has experienced 20%+ annual growth in turnover or employee numbers over the past three years.

Employment and VAT measures

The Health & Social Care levy, initially implemented as a 1.25% increase in employee and employer national insurance contribution, was also preannounced in September. Other than the announcement of the increased national living wage to £9.50, no other employment tax changes were mentioned.  Similarly, there were no significant VAT and import duty changes that impacted this sector. However, there is further detail on eight new ‘freeports’ with tax and duty advantages for goods processed through these areas.

There is a clear recognition in this Autumn Budget of the importance of the automotive sector and its ability to drive innovation and exports globally and create well-paid, highly-skilled, green jobs across the country.

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