Pre-Budget Report explained
Vehicle Excise Duty
Radical reform of Vehicle Excise Duty from next year has been delayed by the Chancellor due to the current economic conditons.
Instead of VED increases next April of up to £230, rises will be capped at £5 for the most polluting cars. VED increases from April 1, 2010 will be capped at £30, but the Government will go ahead with the introduction of a new ‘first year’ rate.
Cars that emit over 225 g/km, but were registered between March 1, 2001 and March 23, 2006, will be moved into new band K in 2009 and stay there in 2010. This will mean that they maintain their exemption from the top rate of VED.
Cars registered before 2001 are not subject to the reforms, because comprehensive data on their carbon dioxide emissions is not available. Instead, pre-2001 cars are subject to a separate VED regime, based on engine size.
The headline rate of VAT will be cut from 17.5% to 15% from Monday, for a period of 13 months. The 17.5% rate will be reintroduced on January 1, 2010, by which time the Chancellor expects economic recovery to be “underway”.
The Chancellor signalled the end of his freeze on fuel duty increases with a 2p-a-litre rise in duty on December 1.
However, when combined with the 2.5% cut in VAT from the same date, the cost of petrol and diesel at the pumps will fall, so motorists should see no increase in the price they actually pay at the pump this year.
The Pre-Budget Report also confirmed that fuel duties will further increase by 1.84p per litre on April 1, 2009; and 0.5p per litre above indexation on April 1, 2010.
National Insurance contributions
The Chancellor announced changes to National Insurance contributions and hidden in the Pre-Budget Report small print was a 0.5% increase in employer Class 1A contributions, which are paid on benefits-in-kind including company cars and company paid-for-fuel used privately.