And so we had the Coalition Government’s first ‘regular’ Budget on 23rd March, awaited with great interest by fuel users and petrol retailers in particular – let’s just remind ourselves that as Mr. Osborne got up to speak, typical pump prices were around 133.9 ppl for Unleaded petrol, and 139.9 for Diesel, with motorway and rural sites trading at considerably higher prices. In the weeks leading up to Budget Day there had been a lot of speculation concerning several possible moves in relation to fuel pricing: an immediate scrapping of the next fuel duty rise which was due in April, a reduction in VAT on fuel, and a longer-term ‘fuel price compensation’ mechanism to balance the duty on fuel against the price of oil.
In the event, The Chancellor chose to announce several measures of direct relevance to forecourt operators:
Fuel -
- An immediate cut of fuel duty by 1ppl from six o’clock on Budget Day.
- The next duty increase that had been due on 1 April 2011 was deferred, to 1st January 2012 when the main fuel duty rate will increase by 3.02 ppl.
- The suspension of the ‘Fuel Duty Escalator’ [which was the formula used to create these regular duty increases] until 2015; the revenue from this to be replaced by a ‘fair fuel stabiliser’ tax on North Sea oil production, the exact details of which haven’t been formalised at this point, but which would appear to use a market price of around $75.00/barrel as a tax threshold.
- No change in the rate of VAT applied to fuels – with a sigh of relief from every retailer and accountant working in fuel retailing!
Tobacco –
- An increase in Tobacco Duty of 2% over the rate of inflation [as measured by RPI] applied from 6.00 pm on 23rd March. The Duty element of a pack of 20 cigarettes increased from £2.38 to £3.10 [that’s 72p a pack] accompanied by a reduction in the ad valorem tax element from 24% to 16.5% of retail price, which was intended to reduce pricing differentials between ‘cheap’ and ‘expensive’ brands. The effect of these two changes resulted in an increase of around 30 pence in the retail price of a typical pack of twenty cigarettes.
- An additional increase in Duty of 10% on hand rolling tobacco.
Alcohol –
- No additional changes to duty rates beyond those already due from the previous Budget; in other words, the increases of 4p a pint for beer, 15 pence a bottle on wine and 54 pence a bottle on spirits were left in place, and came into effect on 28th March.
- A further increase in Duty on higher-alcohol beers [those >7.5% ABV] is due on 1st October 2011.
Of more general interest to businesses and individual taxpayers, there were measures affecting personal tax allowances and corporation tax rates:
Personal Tax allowances – rising to £7,475 from 6th April 2011 [as previously announced], with a further increase to £8,105 from April 2012. The part that isn’t often highlighted is that the earnings figure at which higher rates of tax start to apply is cut at each of these dates!
Corporation Tax rates – a surprise cut of 1% from April 2011, taking the mainstream rate down to 26%, and further cuts planned down to 23% by April 2014. There was less joy as far as small businesses are concerned: the rate for profits below £300,000 drops to 21% for 2011/12, but no information has been provided by the Treasury as to any planned rate after 2012.
Income Tax / NIC merger – there was some late speculation before the Budget that the government was thinking of a really radical move to effectively abolish National Insurance as a separate, almost hidden, tax and simply extend Income Tax to cover the cost. That proved to be a proposal too far, at least for this Budget, but the Chancellor has announced a long-term study to look at the feasibility of doing this. Don’t expect to hear the results before the end of this Parliament though.
Tax Avoidance – As usual, some of the more ‘interesting’ measures in any Budget tend to receive only a passing mention during the Chancellor’s Budget speech, with the details buried in the fine print of documents released by HM Treasury in the weeks and months that follow. One such item this year is a promised “crack down on tax avoidance….by closing down schemes which disguise remuneration, avoid corporation tax, VAT and Stamp Duty Land Tax”. Just that single bland sentence opens a great many possibilities for HMRC to look deeper into the day-to-day financial records and transactions of all businesses; and only the naïve would expect them to start with the very largest companies. At the time of going to press there was no further information from the Treasury or HMRC as to exactly what this crack down will actually involve, or where/when it will start; rest assured we’ll continue to dig around and bring you more news as soon as we find it.
Two final points to remember about the March 2011 Budget:
Firstly that while a lot of the headline announcements referred to ‘no changes’, they really meant ‘no changes other than those previously announced’ – it’s become increasingly common over the last decade or so for the government to announce planned changes to tax rates and allowances several months, and often years, in advance – look at alcohol for example. The increases come into effect by stealth.
Secondly, as far as many of those increases which do make the headlines are concerned, the bit that gets overlooked is that they are ‘x’ amount above inflation. Inflation as measured by RPI was 5.5% per year in February, or 4.4% as measured by the CPI method; the rates are expected to stay at around the same level throughout the rest of this year.
However ‘generous’ the Chancellor may appear to have been in respect of fuel prices, rest assured we’ll all be paying the price somewhere else, sometime soon.
