Changes to capital allowances announced in the last Budget have been described as a “ticking timebomb” that will impact on more than just company car policies.

When the capital allowance bands change in April 2009, companies providing cars that emit more than 160g/km of CO2 will face major cost issues.

From next year, company cars above this level will attract a 10% writing down allowance (WDA*) and cars with emissions of 160g/km or below will attract a 20% WDA.

But the impact of the changes could affect several areas of a company’s business.

There could be recruitment problems for companies who use executive cars to attract employees, Mo Desai, director of human resource services at PricewaterhouseCoopers, told Fleet News.

“Some companies are able to operate successfully by offering medium salaries but a very good company car scheme,” he said.

“But if forced to limit CO2 emissions to 160g/km they will become a company offering medium salaries and a mediocre car scheme.”

The changes could also lead to an increase in the grey fleet as more employees use their own cars for work rather than take smaller company cars, he warned.

Peter Tatlock, managing director of Masterlease, said some customers are already asking questions about how to manage this change, while others are already taking action.

Masterlease has just agreed a major purchase and leaseback deal with one client and is negotiating several others.

This, said Mr Tatlock, could be an indication that fleets who own their vehicles believe that selling them and leasing them back is the answer.

He also warned that fleets and lease companies are currently in a period of limbo, as the Government will not confirm interim arrangements for the new tax measures until the autumn.

“This could lead to significant distortion of the market as companies try to get their new cars before April 6,” he warned.

It may also lead to companies off-loading cars in the run-up to the April changes.

Mr Desai described the situation as the “tax tail wagging the dog” with the link to CO2 driving the initiative, while one industry insider likened Mr Desai’s message as a “ticking time bomb, similar to the recent 10p in the pound income tax rate”, with fleet operators preferring to overlook its impact until it hits next year.

* Type of capital allowance where the cost of assets acquired in the current year is added to the written down value of the assets acquired in the previous years. The allowance is computed as a specified percentage of the total value.