The Car Scrappage Scheme – is it for you?

The car scrappage scheme was introduced at the last budget until 31 March 2010 in an effort to provide £300 million support to the car industry. It follows on from schemes that have been operating successfully in some European Countries. Essentially you can get £2,000 for trading in a 10 year old car that you have owned for at least a year for a new vehicle. £1,000 comes from the government and the balance from the vehicle manufacturer. With cars always being a touchy topic we asked Nick and Chris to put forward points in favour or against the scheme.

For: I’m no car enthusiast so for me the vehicle is designed to get one from A to B in the maximum of comfort. I am hopeful that the scheme produces increased orders and allows employment to be maintained within the car industry in the United Kingdom.

Safety is an important point. Whilst I look back warmly to travelling around the country in a Ford Cortina or a Hillman Hunter it does not mean I need to repeat the experience. Whilst classic cars look lovely I have to confess I don’t feel comfortable in them and even with the safest of drivers I am not convinced we will get round the next corner.  A 10 year old car might not necessarily present such a problem but we do forget that a previous car does not have the brakes that our current model has!

Comfort comes a strong second to safety in my book. If we spend time in our car surely we want to be as comfortable as possible. I am sure that the current model for the majority of cars is more comfortable and therefore preferable to the one being scrapped!

The green issue is also an important consideration. In the small car market I am sure that huge strides have been made in the last 10 years to make the engines more efficient and with car taxation being changed over from the old CC method to the new CO2’s continued efforts are being made to reduce the emissions that are harmful to the environment. What gets overlooked is the miles travelled to bring vehicles into the Country but this is a political hot potato, along with food miles, that will be debated more and more as time passes.

The majority of people want to drive the newest vehicle that they can. When I started driving you aspired to a new vehicle but knew it was a distant dream. Long journeys were planned with spare parts in mind or not even contemplated and starting the vehicle on cold winter mornings a lottery to say the least! Youngsters have never experienced these problems and there is no reason to suggest that they would want to start. Affording the vehicle and insuring it are the current problems but that’s another issue altogether!

Against: I look at the car scrappage scheme as a classic car enthusiast, someone who is concerned for our environment and as a Tax Partner of Lambert Chapman LLP. The three don’t mix. I recollect we were told the car scrappage scheme was to boost the UK car industry and take older vehicles off the road in favour of newer, safer and potentially greener cars.

Let me break down this sentence into the following:

“UK Car Industry”

I consider that the UK doesn’t have a car industry anymore, at least, not of the importance it once was. We used to be a world leader in the car industry but by a mixture of complacency, poor management and over enthusiastic union power, it was destroyed. The car scrappage scheme certainly brings newer cars onto the road and a lot of them are the small lower end market vehicles which, by the very nature of their manufacturers, means a lot of our money is leaving these shores. I recently saw a newspaper report that a certain Japanese manufacturer was having to get its work force to work overtime so they could build enough cars to ship to Britain in time for the new batch of UK registrations.

“Newer Cars”

Why do we have to love “newer cars”? Why don’t we look to having well built cars that last? We are preoccupied with fads and fashion.

“Safer Cars”

 I agree that if cars are poorly maintained they become unsafe so why not channel some of the money into resources to make sure the authorities can finance more rigid checking of more vehicles to ensure they are safe? A modern car is easier to drive than an old car but if the driver adapts their style an old car, driven correctly, is safe (maybe a purge on unsafe drivers is needed?)

“Greener Cars”

I am not convinced on this. I said I was a car enthusiast and my classic car is a 1972 Rover V8. People may say that it is a gas guzzler and not very green but I counter that argument by pointing out I am driving 37 year old metal. There hasn’t been the cost of using fossil fuels to destroy the old vehicle and refine metal to make a new vehicle (never mind the transport costs, etc of new vehicles). Our Government introduced, in April 2002, a 100% capital allowance relief on cars with low emissions. The 100% only applies to new cars so a second hand car doesn’t qualify for the enhanced relief. That is not green as it does not encourage recycling!

I don’t see the car scrappage scheme as really being the answer. I feel that the money could have been better spent in supporting industries that generate wealth for our country. There is also the impact on small businesses who rely upon making parts for old cars. Many of those businesses are in Britain and close to the old car manufacturing establishments. As at August 2009 it was reported that there has been over 35,000 new cars ordered because of the Government scrappage scheme. I am surprised at the number which means 35,000 less opportunities. If the green issue is to be addressed then why is there not a heavy charge on new luxury motor cars or why did they not use the car scrappage money as an incentive on new green vehicles that really are green and are being produced in the normal course of replacing cars?

Recently there was a report that some manufacturers have increased their car prices because of the car scrappage scheme so that they end up being in the same position. That is disappointing but from an economic point of view, who can really blame them?

On a final note, I know of a number of good classic cars that have gone into the scrappage scheme. The scheme means they must be destroyed so it is likely there have been some good, running and reliable old cars that provided transport to a family and the vehicle isn’t going to depreciate any more and could possibly be appreciating. Will the replacement cars depreciate? I suppose one way of looking at it is that the owners of similar models of cars that are in turn classics will find the value of their classic has increased. I could be one of them.

So there you have it – but what do you think?  If you wish to add your own comment at the foot of this article.

“Not many People know that!”

Earlier this year Sir Michael Caine railed against the introduction of the 50% top rate of income tax by the Chancellor. “If the top rate goes beyond 50%, then I shall leave the UK” he was quoted as saying.

I have news for Sir Michael. He needs to start packing his suitcase now! The top rate will be 51%. Sir Michael had forgotten about the 1% national insurance hike which the Chancellor introduced a few years ago.

In fairness, Sir Michael is not the only one to overlook this. The Chancellor tends to as well. This is pretty much the highest accolade for a stealth tax.

Yet, for people with income just above the £100,000 the actual marginal rate is going to be 61%.

Of course, Sir Michael can simply leap on a plane and change his residence at a moments notice. That sort of pre-emptive action is not possible for must British taxpayers.  What they can do is to plan to minimise impact of the tax hikes when they come in on 6th April next.

That is indeed where we might come in. We are looking for the opportunity to advise businesses on what can be done. If you need some advice give us a call on 01376 326266.

Lambert Chapman LLP’s Chris Harman reviews the 2009 Budget

 In my Budget 2008 comments I wrote ‘I expect this to be Alistair Darling’s only Budget. He has been handed the task of implementing some unpopular changes and will no doubt take the flak for a few more financial problems and then will move / be moved on.’  Alistair has now got two Budgets under his belt, is still in office; what more financial problems are to come?

 The world economy is in a mess and we shouldn’t blame Alistair.  The philosophy in the good times of ’spend more and borrow more’ could only lead to problems when (not if) bad times returned. 

 

I am shocked by the inaccuracies of the IMF and the Government in their estimates of both global and national budgets.  The estimates given to us last autumn of the world and of our nations share of ‘toxic debts’ from the lending strategies of banks were dreadfully inaccurate and far too low.  We now get fed more bad news and told that it will get better soon.  Why should we believe that?  The recent track record of forecasts of debt, borrowing and growth are so poor I can only see more bad news to come.  I also expect a future Budget to include a new form of ’short term tax’ (this happened many years ago when William Pitt the Younger introduced income tax to fund our war against France).

 

This year Alistair has had to present a Budget that is to kick start and then boost our economy whilst being affordable.  A tough task. 

 

There will be much in the press and media about the finer points of the 2009 Budget and how it will affect business and individuals so I only wish to make comments on four areas;

1.  Car scrappage.  I wonder how much of the £2,000 discount will stay in this country by being spent on cars that have been built here?  How much of the car manufacturers profit derived from the £2,000 will be invested in the U.K?  What will be the effect on the manufacturers of spares for the older cars that will now be scrapped?

2.  Stealth Taxes.  They are still there and the overall tax take is likely to keep increasing.

3.  HM Revenue & Customs Powers & Penalties.  From April 2010 there will be a reform of the penalties for the late filing of Tax Returns and the late payment of taxes.  ‘Reform’ means increasing the penalties as well as removing the current tax geared system that operates in some areas and also applying penalties to employers and contractors for the late payment of PAYE and CIS.  

4.  Efficiency drives. HM Revenue & Customs have been subjected to staff cutbacks, office moves and restructuring.  This has left those staff still within the HMRC unsettled, frustrated and under resourced.  The result has been a reduction in the level of service HMRC provides and an increase in the cost to business and individuals in the management of their tax matters.  The Government has cut HMRC staffing and resources back too far.  The ’savings’ may look good on paper but I feel they will be short term savings and there will be a big cost to us all in the long term. 

 

I do hope that the 2009 Budget won’t, in the words of a friend, ‘over promote and under deliver’.

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Lambert Chapman LLP’s Nick Forsyth reviews the 2009 Budget

I feel for Alistair Darling. No, I really do. After Blackadder Goes Forth one gets an image in ones mind when his surname is mentioned and his eyebrows attract unnecessary attention before we think about his job as Chancellor of the Exchequer. It’s always difficult to follow a great predecessor (although Bob Paisley did a reasonable job of it) but to follow a fool should be a straightforward task unless he remains your Boss, survived far too long in your current job and wasted all the money he took by whatever stealth method used.

Mr Darling’s job is to get Labour to the next election and do what he can to get his Boss past the post in first position. It really is a tough one! To hamper his main opponent he uses the guile of a higher tax rate in an effort to make them commit tax  plans and then looks to continue spending money to keep his voters in work for as long as possible. Can it work? Possibly it can but these days the electorate, or those of them who can bother to use the vote might be a little less niave than in the past, though I understand a donkey wearing a red rose was elected in the now defunct Dunfermline East in June 1983.

 

Over the years I’ve met many a board who are floating overambitious with their income and growth projections but spot on with the costs. Borrowings normally start reducing, sometimes quite rapidly, in month 10 for the plan but if the plan is not achieved it all it can be catastrophic. I think we have this situation here and worry that things will turn out much worse than currently being forecast.

 

When I heard the speech I did like the increased capital allowances and carry back of losses but due to the loss sums being restricted these might not amount to that much help. Increasing taxes is inevitable but to tax the entrepreneurs might prove to be not such a smart move.

 

In my mind our two main parties are both bereft of ideas and an election is looming. It’s a bit like the upcoming Newcastle United Vs Middlesbrough game; everything hangs upon it yet neither side has any clue on tactics or how to win the game. In this case they might both end up losers whilst in the election it might be the winner that lives to regret it.     

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Uncle Audley adds his thoughts on the 2009 Budget

Uncle Audley was relieved by the Budget.  His hot tip had been that the Government would scrap the Royal Navy to save costs, not that they have left much of it over the last decade.  “Well, at least the Royal Navy is saved but it will be the defence budget which will bear the brunt of the public sector savings and more British servicemen will be risking their lives with inadequate technology and equipment”.

 

How do you hope to reinvigorate an economy when you disincentivise the wealth creators.  It is all very well trying to do more for the young who are out of work and out of training but there has to be real jobs created for them.  I thought the lesson had been learnt that higher tax rates actually stifle enterprise and initiative.  Apparently the lesson has not been learnt. 

 

Pension funds invest in UK businesses.  It seems to me that the Government’s measures to restrict tax relief will have the impact of reducing investment in British businesses.

 

I noticed also about restrictions in tax relief for UK holiday lets.  They are on the same footing as foreign holiday lets so again it seems to me that this will encourage acquisitions in foreign property markets at the expense of the indigenous UK property market. I maybe wrong and we will have to see how things work out.

Lambert Chapman LLP’s Lisa Potter reviews the 2009 Budget

 

GOOD, BAD and INDIFFERENT, to me this sums up the contents of the 2009 budget.    Given the current climate and the potential effect on their re-election, Darling was not expected to deliver a budget full of excitement and for this reason he did not disappoint.

 

Positive outcomes include the incentives for electric cars and the scrapping of cars over 10 years old, although the latter could be abused by those trying to earn some money if not closely regulated.   The ability to use furnished holiday letting losses from overseas property against other income in the UK is again a positive move, as currently many individuals are suffering losses as a consequence of less travel and the high cost of the Euro.      The continuation of the higher stamp duty level of £175k until the end of December 2009 is a stimulant to boost the housing market once again.    Also provides an opportunity to those with money to invest in property for their long term pension.

 

The bad news is that there were no real changes to help smaller businesses, I would have liked to have seen a radical change to the VAT threshold which again has risen by the mere £1,000, this is a limit that has never increased inflationary.    Also the removal of the higher rate relief on pension contributions for individuals earning over £150k – for a government that wants to encourage us to invest in personal pensions so they do not pick up the tab for it, how does this help?

 

Indifferent is the static status of the corporation tax rates and the changes to capital allowances, which whilst a positive step, in the current climate I do not feel will encourage additional spending in this area.     

 

The naming and shaming publicly of tax offenders, one thinks this is a ploy to encourage people to play the game properly, the reality is I feel this would have no benefit to either the revenue or taxpayers in general and will cost the government lots of money to ensure it is implemented correctly.

 

Let’s hope that as part of the new regime for attacking tax offenders whereby more detailed accounts are required for a period of 5 years after the offence they insist on using qualified accountants to prepare them!  

 

Overall another boring budget where Darling has not been daring.

 

 

  

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Lambert Chapman LLP’s Paul Short reviews the 2009 Budget

 It is always difficult to comment in the immediate aftermath of the Budget.  The devil is always in the detail. 

The main issue for our clients will be the tax hikes and pension relief restrictions being introduced.  The current tax year will be a very busy one for me in terms of tax planning.  We will see plenty of what I call the Greaves/Nicholson effect and an awful lot of high earners will be reducing their income to £99,999 or £149,999 per year (again depending on the devil in the detail).

 

Apart from tax planning, I also expect to be busy on company incorporations, particularly of professional practices.  Part of the driver for this will be to mitigate the impact of higher rate relief loss on pension contributions. 

 

The increase in company incorporations which will ensue will be interesting.  At the beginning of the decade of financial mismanagement, Brown introduced the £Nil rate band of corporation tax which led to a surge in company incorporations predictable to everyone bar his Treasury Team, it seems.  This dark age in our island’s history will perhaps finish with another surge of incorporations.  Again, no doubt, this Government will see this as evidence of a return to health for the economy.

 

Unfortunately, these measures will make off-shore tax structures and arrangements more attractive to the highest earners.  Despite their fine words about closing down such arrangements, the Government continue to do nothing.  Indeed, they continues to be the industry’s most effective salesman.

 

The Government’s measures confirm one thing to me.  Socialists have never understood small business.  They never have done, and they never will do.

 

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Lambert Chapman LLP’s Nigel Whittle reviews the 2009 Budget

 Confidence is in short supply and this Budget has not helped to improve the situation.  With the enormous UK Government deficit continuing for years to come, our relative position with the rest of the world looks highly challenging.  

Alistair Darling’s method of combating this problem seems to be by taxing the wealthiest.  This will only lead to emigration of those that the country needs to retain, or evermore complex tax avoidance measures being created which will reduce the overall tax take.  The only real effective way of reducing the Budget deficit is by reducing Government spending. 

What is of even greater concern is that the Conservatives are not making clear that they will pursue a policy of low taxation which will inevitably lead to a continuation in lack of confidence in our potentially high earning business leaders.  Our hopes did rest upon a change in Government next year which would implement business friendly policies. 

 

Let us hope upon further consideration by George Osborne and David Cameron that they will tackle the Budget deficit and restore confidence in the UK economy.

 

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Lambert Chapman LLP’s John Smith-Daye reviews the 2009 Budget

I continue to be unimpressed by Mr Darling’s efforts to manage our economy in these troubled times, and I agree with one of the BBC correspondents who was saying that we needed to see unprecedented leadership in attacking the environmental and economic crises, whereas what we actually got was Alistair fiddling while the planet burns!

 

Having recently read Orwell’s “1984” again, I am beginning to think that AD is in fact an officer of the Ministry of Truth  - the propaganda arm of the UK regime, controlling information: news, entertainment, education, and the fine arts. Can  he really believe that the vehicle scrappage scheme can make any significant difference to the motor industry? Those who have cars more than ten years old are surely the least likely to be looking at buying a brand new car. And not a single homeowner has yet received any benefit from the HomeBuy Direct scheme, according to David Cameron.

 

A small boost to investment will come from the increase in the level of Capital Allowances from 20% to 40%, but I don’t expect this to have a major effect on the majority of our clients, who were all looking for and needing more than has been done in this Budget Speech. However, this is only on expenditure above the £50,000 AIA level, in the year of purchase.

 

On the positive side, if you believe what is being said, the budget deficit will be halved over the next four years, and we will be growing our way out of this recession. In my opinion, this growth needs to be encouraged an awful lot more by Governmental measures for the grass roots of the economy, to encourage an entrepreneurial spirit, to build confidence in this country, rather than to introduce hair-brained schemes that have little effect on the man in the street.

 

I wish I could be more positive, but I don’t feel at all inspired by this type of Budget Statement.

 

 

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