High-polluting cars that are already in use by fleets will be able to bypass new tax rules that come into force next year.
The news could lead to a rush to get such cars onto fleets before next April, as well as some fleet operators extending lease contracts for high-polluting cars.
“Drivers of some executive cars will get their orders in quickly to try to beat the changes,” said Ian Tilbrook, managing director of ING Car Lease.
“But with lead-in times of over six months, they will have to be quick.”
It was announced in the last Budget that cars emitting more than 160g/km of CO2 will have their writing down allowance cut from April 2009, meaning they will be more expensive to lease and therefore less attractive to fleets.
However, there was widespread confusion about whether the changes would be applied retrospectively to all lease cars.
“There was a hiatus of misinformation,” said John Lewis, director general of the lease industry association, the BVRLA.
“We never had any doubts…the BVRLA view was that it would never be retrospective.”
Now the Treasury has quietly confirmed to the BVRLA – more than two months after the original Budget announcement - that cars already on lease will not be affected.
The association told its members that “it is the Treasury’s intention to apply the new regime to new cars from 1st April 2009 until or unless we are advised differently…any other interpretation of commencement can only be viewed as uninformed.”
Under a process known as grandfathering, two capital allowance systems will run in unison from April 2009.
This means pre-registered cars that emit more than 160g/km will be taxed under the current capital allowance system, while similar cars registered after April 2009 will be subject to the new writing down system.
It is expected that the grandfathering process will run for at least three years.
While there has been a growing trend towards lower emitting fleet cars, there are still a substantial number of company cars that produce over 160g/km.
According to the BVRLA, 40% of cars currently on lease emit more than 160g/km.
However, as Mr Lewis explained the number of sub-160g cars will rise significantly from next April.
“The number will rise rapidly,” he said, “We expect it will be 80% by April 2009.”
ING reports that 76% of its cars are now sub-160g, which is a 9% increase over last year.
This is because it is also beneficial for company drivers, in the form of lower Benefit-in-Kind payments, as well as businesses to have low emitting cars on their fleet.
“If companies don’t start insisting that employees have cars between 110g/km and 160 g/km they will find themselves significantly worse off in the tax year 2009/10,” said Neal Francis, divisional managing director of lease company Pendragon.
But, as Mr Tilbrook said: “This is not the end of the company car – they will just be more expensive to lease.”