NAA Member News: Brabners – The Road Ahead: Preparing for the New Tax Year
With the UK tax regime set to evolve next month, Christine Hart, Legal Director at purpose-led independent law firm Brabners, highlights the changes set to impact the Northern automotive industry.
March is often a high point in the calendar for the sector, with the end of the first quarter bringing the introduction of the latest set of vehicle registration plates and a boost in sales.
But while we await the impact of the new 25 plate on forecourts and production lines, management teams have also been considering what changes the start of the new tax year in April will bring.
Naturally, this will have implications for firms in all sectors – however, an appetite within Government to better balance the taxonomy for electric vehicles (EVs) means that automotive businesses have a comparatively high number of updates to consider this year.
Vehicle taxes
For automotive businesses, perhaps the most important update to be aware of on the 6th of April is the planned increase to Vehicle Excise Duties (VED).
Looking ahead, changes to VED mean that EV owners will now be required to pay the tax for the first time, as part of the Government’s phased approach to better balancing taxes on electric cars with their fuel engine counterparts.
New zero-emission cars registered on or after the 1st of April 2025 will be subject to the lowest first-year rate of £10. This will be fixed until 2029-30 and replaces the previous rate of zero.
After the first year, these vehicles will be subject to the standard annual rate of £195. EVs registered between the 1st of April 2017 and 31st of March 2025, meanwhile, will now be subject to the standard rate of £195. In tandem with this, the government will uprate standard VED rates for cars, vans and motorcycles in line with the Retail Price Index.
This will undoubtedly have an impact on the cost of owning and maintaining an EV, and with recent data from the SMMT indicating that fleet sales are continuing to account for a significant proportion of sales, manufacturers will need to be alive to the potential of demand easing.
In a similar vein, EV demand may also be subject to the planned increase to the rate of Benefit in Kind (BiK) individuals must pay on company cars. From next month, the BiK rate for zero-emission vehicles will rise by 1% annually, moving from the current 2% to 3% in April 2025, 4% in 2026, and 5% in 2027.
The upside is that, although the changes will raise costs in the short term, they will serve to further widen the gaps between electric, hybrid, and ICE cars tax rates, meaning that low emission vehicles will remain a relatively attractive tax proposition.
Input costs
Looking beyond tax changes that will affect consumer demand, as of April, businesses will also need to contend with a 15% increase to Employers National Insurance Contributions (ENIC), which the Government announced at the Autumn Budget. Alongside this, the earning threshold at which businesses need to start paying the tax will fall from £9,100 to £5,000.
For automotive businesses, this will inevitably impact cash flow and increase the cost of supporting a workforce, with the Institute for Fiscal Studies estimating that employers will have to pay an additional £900 for each employee on average. This will be accompanied by the introduction of the new national minimum wage rate, which mandates that all employees over the age of 21 are entitled to remuneration of at least £12.21 an hour.
This will ultimately contribute to higher payrolls for businesses across supply chain, many of which are already contending with high input costs, including energy.
With this in mind, it’s worth noting that the impact of the ENIC rise on smaller employers will be offset by steps to increase the Employment Allowance threshold. This means that businesses with an annual ENIC liability of under £100,000 will be able to reduce the amount they pay by up to £10,500. This could make a real difference for smaller parts manufacturers or dealerships contending with high overheads, so it’s important that management teams are aware of the qualifying criteria.
Future M&A
Following on from the changes made to Capital Gains Tax in the Autumn Budget, the new financial year will also see an increase in Business Asset Disposal Relief (BADR).
Formerly known as Entrepreneur’s Relief, BADR offers eligible businesses a reduced Capital Gains Tax rate on gains made through business and asset sales, up to a lifetime allowance of £1million. Instead of paying the standard 24% rate, which was implemented in October 2024, qualifying disposals have been taxed at 10%.
From April, this rate will rise to 14% and will be followed by a further increase to 18% from the 6th of April 2026, resulting in a BADR rate that is only 6% below the main rate of CGT.
M&A activity in UK automotive has remained resilient, with an uptick in operators looking to cash in on their business assets complemented by those looking to build resilience through consolidation and acquisition. As such, we anticipate that the next two years will still see businesses look to accelerate their exit strategies further to ensure that they’re able to capitalise on these favourable rates while they still can.
Plotting a route
Navigating the tax landscape can be a difficult task at the best of times but particularly with such a significant change to the regime within a short period. Turning to specialist legal support can help to ensure compliance and adapt your business strategy where appropriate.
For more information on how we can support you, contact Christine.Hart@Brabners.com.
