Nick Simpson of AFS Vehicle Leasing advises businesses who operate vehicles to reassess their fleet policies now if they want to take full advantage of next April’s new emissions-based corporation tax regime.
Business Cars and Corporation Tax
Why are things changing?
- According to government statistics, cars are responsible for around 9% of UK CO2 emissions
- Car manufacturers set a target of reducing average emissions of new cars to 130g/km by 2012
- The government has introduced new tax rules to encourage people to choose cleaner vehicles
- The changes introduced on 1 April 2009 mean all motoring taxes give businesses an incentive to switch to low emission, and therefore more fuel efficient, vehicles
- They have major cost implications for fleet managers
- Give a real financial incentive for those switching to lower emission vehicles
- Organisations that choose cleaner vehicles will now be improving their balance sheet as well as their corporate social responsibility (CSR) credentials
- The Energy Saving Trust estimates that UK businesses could save £2.6bn by switching to greener fleets
What is changing?
- From next April, 160g/km becomes a key CO2 emissions figure
- This will replace the previous £12,000 ‘Expensive Car’ threshold
- It will be used as a breakpoint with two new accounting incentives being introduced to encourage businesses to choose cleaner cars:
1) The cost of owning a business car
- Cars with CO2 emissions above 160g/km will receive a 10% writing down allowance
- Those at or below 160g/km will attract a 20% allowance
- Therefore organisations buying a vehicle emitting 160g/km or below outright will be able to offset twice as much of the cost of its depreciation against their corporation tax bill.
- Organisations willing to buy vehicles that produce less than 110g/km of CO2 will until 2013 according to the Government be able to write off the full cost of these cars in the first year.
2) The cost of leasing a business car
- Organisations will be able to offset 100% of their leasing payments against their tax bill if the vehicle is below the 160g/km threshold, irrespective of its capital cost
- For leased cars emitting more than the 160g/km threshold, organisations will only be able to claim 85% of the financial element of the rental.
What does it mean for business car owners?
- The new corporation tax regime will reduce the accounting burden for business car owners
- Offer a realistic incentive for organisations to choose lower emission vehicles
- The tax changes will also relieve a major administrative burden from accounting departments who now will only need to establish whether a vehicle has emissions above or below the 160g/km threshold to work out their writing down allowance or lease rental restriction
What should fleet managers do?
- Whether you run 1 vehicle or a 1,000, organisations need to review their business car strategy to ensure that they can take full advantage of the new tax regime when it arrives on 1 April
- Firstly, they need to review their acquisition method
- Currently there is a ‘tipping point’ of around £20,000, with most tax advisers recommending companies to buy cars costing more than this figure
- From next April, leasing is expected to be the most tax efficient acquisition method in nearly all cases
- Secondly, companies need to review their car policy, examining the whole-life cost of vehicles
- For example, two £30,000 cars may cost the same to lease or purchase, but, depending on emissions, could have a dramatically different after-tax cost
AFS Vehicle Leasing (the vehicle leasing arm of Asset Finance Solutions) is an independent vehicle leasing broker operating throughout the UK providing competitive relationship driven vehicle leasing solutions for fleet operators. We have an extensive panel of vehicle leasing providers at our disposal, which enables us to select the most appropriate combination of Lessor and vehicle to best suit your fleet requirements. We offer a wide range of funding products from Business Contract Hire (with & without maintenance), PCH (with & without maintenance), PCP, Lease Purchase, Hire Purchase and Finance Lease etc.
AFS can also arrange sale and leaseback schemes which can provide immediate outsource of the day to day management of the vehicle fleet. A major benefit of this is depreciation & maintenance costs are no longer the responsibility of your business allowing for a fixed budgeted cost for your vehicle fleet. Additionally this product could be used for businesses who wish to raise cash against an owned fleet.
Visit www.assetfinancesolutions.com for more information