Lease accounting standards

Alastair Kendrick, employment tax director at MHA MacIntyre Hudson LLP, doubts there will be a significant move from employers from contract hire into outright purchase.

“Whilst we have the ongoing discussions on international accounting standards which seem to keep being delayed, many employers will not want cars on their balance sheet which would occur if outright purchase was introduced,” he explained.

“Employers may look at other funding options like contract purchase, but care is needed here because, from experience, many of the providers offering contract purchase do not offer similar terms to those for contract hire.

“This is because with contract purchase the lessee can retain the car at the end of the lease and there is a fear by the lessor that they will only get the high mileage, less attractive cars on return. On this basis the contract purchase may not cost less than the increased cost of contract hire on a similar car.”

A pro-diesel budget

Andrew Hogsden, senior manager of Lex Autolease’s Strategic Fleet Consultancy, told Fleet News that when you factor in the combined impact of the capital allowances and BIK changes, “it’s difficult to get away from the belief that this is very much a pro-diesel Budget”.

“The reduction in writing down allowances by 2% and, more significantly, the drop in the lease rental restriction from 160g/km to 130g/km will impact on whole life costs in quite a profound way,” he continued.

“For cars in the 130g/km to 160g/km bracket we project that a large fleet operating 500 cars will incur a whole life cost increase in the region of £180,000 per annum, which underscores the size of the task facing firms between now and April 2013.”

Many businesses currently operate with a CO2 cap set at 160g/km for capital allowances purposes, so they will need to restructure their schemes to mitigate the impact.

“Bringing that cap down was a natural step, however bringing it down to 130g/km was a larger drop than expected and could have the effect of restricting choice in the volume fleet segment,” said Hogsden.

“It almost rules out traditional petrol vehicles for those companies which aren’t prepared for the additional cost of offering cars with 130g/km to 160g/km to their employees. As a consequence, these measures demand a wholesale review of company car policies.”

As a result, Lex Autolease anticipates a further focus on diesel and some downsizing in order to come in under the new 130g/km cap and benefit from the BIK advantages generated by the removal of the 3% diesel supplement.

But it says that the lowering of the emissions threshold for 100% FYAs to 95g/km could, in practice, have quite a limited impact.

Hogsden explained: “The changes potentially make contract purchase a more cost effective funding method, but the lack of vehicle choice at this level would make it suitable for only a small number of large essential user fleets.”

Complacency

Rawlings concluded: “This budget is certainly not signalling the end of the company car, It is a clear message saying to all concerned ‘don’t get complacent, you must continue to think low emissions if you want value for money’.

“As we have said for many years’ businesses must bring tax into their wholelife cost and funding calculations. Buying on list price or rental is simply no longer the sensible thing to do.”