Under the proposed changes in the Corporation Tax Review, instead of leasing companies claiming tax allowances on vehicles and passing the benefit on to drivers in the form of lower leasing costs, customers would have made the claims instead.
Although this would have guaranteed the fleet operators would receive the benefit of tax allowances directly, it would have been at the expense of handling vast amounts of detailed paperwork, on top of what they currently have to deal with.
In addition, monthly rentals would have increased as soon as the cushion of tax allowances was removed.
The British Vehicle Rental and Leasing Association warned the result would have been ‘mayhem’ if the changes had gone through.
But following wide-ranging consultation, it became clear that the full benefit of any allowances was already passed on to leasing customers, so the only impact of any change would be to generate more paperwork.
As a result, contract hire will remain unaffected when the reforms come into affect in the 2006 Budget, although there will be minor technical changes that affect some other forms of funding, including finance lease.
John Lewis, director general of the British Vehicle Rental and Leasing Association, said: ‘This is something that we have been lobbying hard for.
‘The Government’s original proposals would have had a severe impact on the industry by transferring capital allowances to the lessee which would have hit monthly rentals hard.
‘However, robust analysis by HM Revenue and Customs demonstrated very clearly that in our sector, the effect of the lessors’ allowances were being fully passed on in the form of lower rentals to customers.
‘We’re delighted that a lot of hard work has paid off and customers will benefit through maintaining lower rentals while the leasing industry administers the allowances.
‘Had the original proposals gone through there would have been mayhem in the sector as end-user companies struggled to keep up with the legislation and claim the allowances.’