Despite huge pressure, the Chancellor has decided not to amend the controversial AMAP fuel rates. However, he has changed the capital tax on company cars

In addition to reforming Vehicle Excise Duty, in his budget Chancellor Alistair Darling promised that the Government will further promote the take up of cleaner cars through reforms to the taxation of business travel.

This will be done by replacing the existing capital allowance treatment for business cars with an emissions based approach

With effect from April 1, 2009 for corporation tax purposes (6 April 2009 for income tax) the capital allowance treatment of all cars will be reformed.

Expenditure on cars with CO2 emissions above 160g/km will attract 10 per cent Writing Down Allowance (WDA) and expenditure on cars with CO2 emissions of 160g/km or below will attract 20 per cent WDA.

Subject to state aid approval, cars leased to those in receipt of certain disability allowances will be placed in the 20 per cent main pool, regardless of their CO2 performance.

The rules which disallow a proportion of car lease rental payments will be reformed in line with the new capital allowances rules.

The new disallowance will be 15 per cent of the relevant payments, applied to cars dealt with in the 10 per cent special rate pool.

The Government is considering the option of applying the disallowance only to the final business user in a chain of leases.

In addition to this:
 

  •  the 100 per cent first year allowances (FYA) for the cleanest cars will be extended from 31 March 2008 to 31 March 2013 and the qualifying CO2 emissions threshold will be reduced to 110g/km;
  • the 100 per cent FYA for gas re-fuelling infrastructure investment will also be extended from 31 March 2008 to 31 March 2013, and its scope expanded to include biogas infrastructure;
  • company car tax rates will be increased on all but the cleanest cars emitting less than 135g CO2/km or less in 2010-11;
  • the incentive to drive fewer miles will be strengthened by increasing the fuel benefit charge at least in line with the Retail Prices Index from April 2009; and
  • tax-free mileage allowances (AMAPs) rates and thresholds will be maintained at current levels.