Fleet News

Fleets welcome tax clarification

The Treasury has confirmed that new capital allowance rules will not apply to cars already on fleets.

Doubts over the tax implications were removed this week when the Treasury finally published clarification over changes to the capital allowances tax system, which come into force in four months time.

The most significant clarification is that the new rules will apply only to cars put on to fleet after April 1, 2009.

Under the new rules, companies will be able to claim differing amounts of costs back against tax. From April 1, 2009, businesses can deduct 10% of a vehicle¹s depreciating value each year from taxable profits if the vehicle emits more than 160g/km of CO2.

Another band affects vehicles emitting 111­160g/km of CO2 ­ these being eligible for a 20% deduction. Cars emitting 110g/km of CO2 or less can still write down 100% of depreciation in the first year.

Since the changes were first announced by chancellor Alistair Darling, fleet providers have been concerned to know whether there would be a retrospective element to the new tax rules.

"The clarification is welcomed," said Phil Peace, director of sales at Hitachi Capital Vehicle Solutions. "It is now critical that fleet companies work with their clients to help them understand the impact of the changes.

"For the majority of vehicles in the 111g/km­160g/km of CO2 bracket there will be little impact to the leasing companies.

"However, these vehicles will no longer be subject to any expensive leasing disallowance (which allows businesses to deduct the full cost of rentals from profits if the car costs less than £12,000) which could bring considerable benefit to the after-tax cost of leasing to the customer.

"For vehicles over 160g/km and with a list price in excess of £12,000, the costs of either leasing or outright purchase are likely to increase due to the reduced allowances.

"For vehicle leasing, as the list price increases, the replacement of the expensive car leasing disallowance with the flat 15% charge may lead to an overall reduction in the after-tax cost of leasing."

John Lewis, director general of the BVRLA, said: "After two and a half years of speculation and mis-interpretation by a number of experts, we are extremely pleased that the Treasury has listened to our call for grandfathering (running two systems ­ one for new cars and one for vehicles already on fleet) and given the industry an extra year on top of the four years we asked for.

"We are particularly pleased about the lease rental restriction only applying to one lease in a chain."

Car fleet operators' association ACFO has also welcomed the treasury statement.

"ACFO was heavily involved in the consultation. It is pleasing that our efforts have not been in vain," said chairman Julie Jenner.

According to BVRLA figures, 40% of cars currently on lease emit more than 160g/km of CO2, but it expects this to decline with the new rules. The organisation estimates that the proportion of sub-160g/km cars will reach 80% by next April, when the new rules come into effect.

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