Industry experts say the move could lead to changes to benefit-in-kind calculations, currently based on list prices, particularly as Trade and Industry Secretary Stephen Byers has warned list prices could be abolished if fleet discounts are not made available to retail buyers through equal buying terms being given to dealerships following recommendations in the Competition Commission's New Cars Inquiry report.
The Inland Revenue ruling affects cars costing more than £12,000, on which tax relief on leases is limited - the more expensive the car, the less tax relief is available to the fleet. So for a £13,000 car, 3.8% of the rental cost is disallowed, while for a £25,000 car, 26% of the rental is disallowed. The inclusion of discounts means the retail price of the car will come down, although the total must still include VAT and accessories, so more of the rentals can be offset against tax.
However, where companies do not know the price paid by the leasing company, they will have to rely on 'normal' retail prices, so fleets will need an open relationship with their contract hire supplier to benefit from the decision. The move has raised expectations this could pave the way for the Inland Revenue to abolish the use of list prices altogether in tax calculations, including in company car tax.
Industry commentator Ron Williams, who discovered the anomaly, said: 'Naturally, attention will turn to other taxes based on list prices, notably the company car user's benefit-in-kind charge.' But Alison Chapman, a partner with Deloitte & Touche, was sceptical: 'Theoretically, this should have a big impact on fleets. I am not saying the Inland Revenue will not extend this attitude towards company car tax, but it is a much more complicated issue affecting individual drivers.'