The changes announced in the Budget that mean from April 2009 vehicles with emissions of 160g/km of CO2 or less will suffer no rental disallowance, could encourage more fleets to consider contract hire and leasing.
Automotive tax expert, David Rawlings from Deloitte, said the changes will make a “big difference” and will effectively set two benchmarks for company cars – one below 120g/km and one below 160g/km.
"Companies will now need to bring tax into their calculations of whole life cost, otherwise it won't be the true whole life cost,” he said.
“The removal of the rental disallowance, at least for cars emitting less than 160g/km, is something that the fleet and leasing industry has been campaigning for many years,” added Fleet Alliance managing director Martin Brown.
It means fleets renting sub-160g/km cars can now offset the full contract hire rentals paid against their taxable profits.
“Vehicles with emissions of 160g/km will, however, attract a flat 15% disallowance, which gives fleet operators an extra incentive to select cars submitting less than 160g/km,” said Mr Brown.
In summary, cars that emit more than 160g/km will become more expensive than cars up to 160g/km to buy or lease in tax terms.
“As a result, I expect a range of cars to no longer have a market within the mainsteam company car arena, although it will take time for companies to realise the effect,” said Mr Rawlings.
“The question is where the line is drawn. Is it 170g/km, 180g/km or another number?
"However, there will still be a place for high emission cars among the ranks of the executives.”