HM Treasury (HMRC) has come under fire for its latest proposals by the British Vehicle Rental and Leasing Association (BVRLA).
The outcome will mean leasing and rental companies facing higher costs – extra expense they will inevitably have to recoup from customers.
Some industry insiders are concerned that rises could be as much as 7% or 8% – which if passed on to customers could be as much as £1,000 over three years on a current £400 a month lease.
It highlights that the cost of running business cars is a normal business expense and writing down allowances (WDAs) are available to help with this.
The current situation for WDAs is that the values of all of a firm’s cars costing under £12,000 are aggregated and then written down by 25% per annum.
Cars costing more than £12,000 are written down individually at a maximum of £3,000 each year.
In both cases, a balancing charge or allowance is applied when the vehicle is disposed of.
That then allows the full market depreciation to be counted in. HMT is now proposing that all cars with CO2 emissions under 165g/km to be written down at 20% per annum and cars over 165g/km at 10% per annum.
However, the BVRLA says, proposals are for writing down on a reducing balance basis and with no balancing charge being allowed when the vehicle is sold.
Director general John Lewis said: “This leads to the ludicrous situation that a very significant part, if not the majority, of each car’s value will still be on a business’s books long after the vehicle has been disposed of – in some cases this could stretch out to 15 to 18 years.
“And the application of a single break point in emissions will mean the creation of a “cliff edge” where companies will simply not take cars that are just over 165g/km.”
He added: “To demonstrate the lack of clear thinking on this issue we come to another issue.
“Cars costing more than £30,000 are generally heavier, have bigger engines and cause greater pollution than cheaper models, but the new proposals are actually favourable for them as the WDAs are actually accelerated during the early years.
“I’m sure this consequence was unintended but it does demonstrate the lack of thought or understanding that has gone into the proposals.”
Mr Lewis voiced concerns that such proposals will, if implemented, be highly damaging to the current business car regime and will also have significant knock-on effects for the majority of UK businesses.
An HMT spokesman said: “The BVRLA’s concerns are misplaced – no decisions have been made yet on modernising tax relief for business expenditure on cars.
“The government cannot emphasise enough that the points the BVRLA have raised are subject to consultation.”