Emergency Budget, By Mark Sinclair, Director, Alphabet
“The VAT increase will make it all the more important for businesses to make sure they reclaim VAT wherever possible. This will make leasing fleet vehicles even more of an attractive proposition compared with outright purchase, since leasing companies can recover the VAT on cars’ purchase price and pass on the benefit in the form of reduced rentals.
“Higher VAT will also significantly affect fuel costs. Although leasing and ownership calculations will both be affected by the reduction in the writing down allowance rates from April 2012, the impact of these changes will be offset to a large extent by the reduction in the rate of corporation tax, so the overall impact of corporation tax changes on fleets will be broadly neutral. Leasing remains more attractive than ownership from a corporation tax perspective. Many fleets have already shifted their policy caps to limit to most drivers to sub-160g/km cars in order to benefit from the highest available rate of capital allowances and the 15% lease rental disallowance.
“Going forward, I expect to see even greater emphasis on encouraging drivers to choose lower-CO2 cars to mitigate rising fuel prices. Whole Life Costs modelling will become almost universal as the basis for setting car policy.
“I am slightly surprised to see the idea of a fuel tax ‘price stabiliser’ being resurrected after it was apparently quashed during the coalition policy negotiations last month. Such a mechanism could effectively commit the Government to taking de facto control over pump prices, raising the spectre of shortages in a few years if refineries divert supplies to other markets where they can get better prices for their product. This needs to be very carefully thought- through.”