Capital Allowances
The countdown to the April 1, 2009 corporation tax changes is well underway and fleet experts are urging all businesses to review their company car policies or pay the consequences.
With the economic turmoil hitting all businesses and public sector organisations putting cost control firmly in the spotlight, it is crucial that companies review both current funding routes and fleet choice lists.
The importance of taking action has been underlined by the British Vehicle Rental and Leasing Association, which says: “The message is simple. Whether they have a fleet of thousands of vehicles or just a few, companies that act now and prepare for the new legislation being introduced on April 1, 2009 could save hundreds of pounds per car in lower tax charges.”
The wholesale changes to the current corporate taxation regime will have a major affect on the tax relief organisations can claim each year for the depreciation of their vehicles. There is also a major shift in how companies can offset the cost of leasing cars against their tax bill.
As John Lewis, director general of the BVRLA, said: “Any company that runs business cars or is thinking of doing so needs to act now if it wants to be in a position to take full advantage of the changes next April.”
It’s a view shared by leading fleet consultant Stewart Whyte, managing director of Hampshire-based Fleet Audits, who added: “Employers who do not review their policies could well find the depreciation and funding elements of their fleet costs increase by up to 15% as a direct result of these changes, whether they lease or buy. These changes will also impact on many public sector fleets.”
The changes to corporate tax capital allowances see the introduction of a regime linked to the carbon dioxide emission of a company car. In a bid to encourage fleets to accelerate their ‘green’ journey it means that:
From April 1, 2009 expenditure on cars with CO2 emissions above 160g/km will attract a 10% writing down allowance (WDA) and expenditure on cars with CO2 emissions of 160g/km or below will attract a 20% WDA.
In addition, the 100% first year allowance for the cleanest cars has already been extended to March 31, 2013 and the qualifying CO2 emissions threshold has been reduced to 110 g/km from 120 g/km.
The rules affecting leased cars are being reformed in line with the new capital allowances rules. From April 1, 2009, leased cars emitting more than 160 g/km will have 15% of the relevant payments disallowed – a measure that replaces the existing ‘expensive car leasing’ disallowance.
That is the broad outline of the Government’s plans, but the detailed small print of how the new scheme will work is expected to be published alongside the imminent Pre Budget Report.
Typically, the new rules mean that cars up to and including vehicles emitting 160 g/km will be cheaper to operate than those above that threshold.
However, the new rules mean that fleets must look at how they fund their company cars as the changes will impact on whether it is cheaper or more expensive to buy or lease vehicles and the decision will be dependent not only on their CO2 emissions, but also on other factors including: the cost of finance, whether VAT can be recovered and the corporation tax rate.
As Mr Lewis says: “The fact that corporation tax relief is now based on a car’s emissions and not its price means that people need to look again at what vehicles they allow on to their fleet and whether they buy them outright or lease them.”
However, tax experts Deloitte & Touche say: “The abolition of a rental disallowance for cars emitting sub 161g/km, means most companies will be better off leasing these cars. For any car emitting over 160 g/km it is likely that leasing is again the most cost effective method, unless the company has a very low cost of funds.
“Until leasing companies release their post April 2009 pricing, and residual values settle down in these uncertain times, it is difficult to predict for certain but from a purely financial standpoint it looks as if leasing could become the dominant method of funding for most cars.”
With company car driver benefit-in-kind tax and Vehicle Excise Duty already linked to cars’ CO2 emissions - and fuel economy improving the lower the emissions - significant financial savings are available if companies do the maths and choose the optimum funding route and low CO2 emitting vehicles.
Mr Whyte also stresses that the current economic climate, as well as the forthcoming corporate tax changes, means now is a ‘good time’ for organisations to look closely at their fleet strategy.
“The most important thing is to be pro-active,” he said. “Businesses that fail to act on managing fuel costs, or which continue to ‘invest’ in big, thirsty models will be made to realise that this is a high-risk/high-cost strategy in today’s climate - and in tomorrow’s as well.”
Mr Lewis concluded: “The message is clear. Company fleet managers need to start looking at the wholelife costs of their vehicles, concentrating on emissions and not list price.”
· Further information on the tax changes is available at www.bvrla.co.uk