VAT changes, support for UK motor industry and road charging should all be tackled in Budget, says VRA

Changes to VAT around compensation payments, strategic support for the UK motor industry, and the future of road charging are key subjects that should be tackled by the Chancellor in March’s Budget, says the Vehicle Remarketing Association (VRA).

All three issues are likely to impact on the remarketing sector either in the short, medium or longer-term, believes the industry organisation, and its members would benefit from an increased degree of certainty from the government.

Jonathan Butler, VRA board member, and partner and head of automotive at legal specialists Geldards, explained that new changes being proposed by HMRC would mean that any measures classed as compensation payments could become subject to VAT in the future including penalty clauses, early termination charges and more.

“This would be directly applicable where these charges are made in the remarketing sector, such as when damages are applied to vehicles that are inspected and collected at the end of lease contracts. Currently, these are zero-rated.

“Our feeling is that this would add cost in a sector where businesses are already under pressure and appears to be a relatively superfluous change. While it is arguably not a major addition to overall costs, it simply seems unnecessary at this point in time and we would like to see the Chancellor dismiss it as an idea.”

Philip Nothard, chair at the VRA, added that the organisation would also like to see the government take steps to look at the strategic future of the UK motor industry as well as the potential for road charging.

“Motor manufacturers and their supply chains are clearly facing both short and long term problems. Immediately, the pandemic and Brexit have both had a deeply negative effect on the market as well as issues such as the worldwide automotive microchip shortage that is forcing many companies to halt production.

“However, there is also the requirement to support the viability of EV production in the UK well ahead of the Government’s 2030 electrification target, with the major need being based around massively expanded battery manufacturing capacity.

“We’d like to see an indication from the Chancellor that he recognises the importance of the motor industry to manufacturing in the UK, and that the Government has a comprehensive strategy to fully support the fundamental changes that need to happen. In motor manufacturing terms, the end of the decade is simply not that far away.”

Philip added that it was also the prospect of car and van electrification that was leading to the possibility of road charging being raised as an issue.

“Currently, the government is using several fiscal tools, notably very low benefit in kind company car taxation, to boost demand for EVs. However, over time, this will lead to a fiscal shortfall that will eventually need to be recovered somewhere.

“Several solutions are being discussed across the transport and motor industries, and the one that seems to be gaining the most traction is some form of road charging. It would be a positive step for the Chancellor to announce some kind of consultation on this, we believe, allowing time for widespread debate to take place and for businesses in remarketing and elsewhere to prepare for whatever form of taxation the government chooses for the future.”

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