New tax rules came into force at the start of this month that will change the make-up of company car fleets forever.

Whether a company leases or buys its cars it will be affected, although the impact on fleets where all or the majority of their cars are low-emitters will be minimal.

The new capital allowance system is aimed at rewarding fleets running cars that produce CO2 emissions under a 160g/km benchmark.

It also penalises those that run vehicles with emissions over that benchmark, although an anomaly has made some high-polluting cars cheaper to rent.

From now expenditure on cars above 160g/km will attract a 10% writing down allowance (WDA) and expenditure on cars of 160g/km or below will attract the normal 20% WDA.

The 100% first year capital allowances remains for cars emitting 110g/km CO2 or less.

Existing cars, whether purchased or leased, will remain under previous rules for up to five years.

“The impact depends on a number of factors, but for a typical fleet vehicle emitting under 160g/km and over 110g/km this means it will take 10 years to claim 95% of the available capital allowances, but for a vehicle emitting over 160g/km this rises to more than 25 years,” explains Robert Kingdom, head of marketing at Masterlease.

This means outright purchase fleets will suffer more, although leasing companies will be affected too, so customers may see rental increases, particularly for higher emitting vehicles.

It is estimated that an average car sub-160g/km car could be up to £30 a month cheaper than a similar car over the benchmark.

“All fleets need to review their acquisition method.

"There used to be a tipping point of around £20,000, with most tax advisers recommending that companies should buy or contract purchase cars costing more than this figure,” explained John Lewis, BVRLA chief executive.

“Under the new regime, leasing is expected to be the most tax-efficient acquisition method in nearly all cases.”

This is a view shared by the majority of commentators.

“The new regime makes contract hire cheaper than outright purchase or contract purchase for cars below 160g/km,” agreed Mark Sinclair, Alphabet director.

The main losers are low-priced cars that emit more than 160g/km.

“The new rules make such cars a price trap, even when heavily discounted,” he added.

For sub-160g/km leased cars costing less than £12,000 there will be no change – 100% of any rental payments will be tax allowable, and for any leased sub-160g/km car costing more than £12,000 all of the rentals will also be allowable.

However, for leased cars over 160g/km and costing less than £17,000 there will be a reduced level of tax relief.

“However, it is important to note that the monthly rentals charged by the leasing company for these cars are likely to increase as they pass on the impact of the delays in receiving writing down allowances,” said John Kelly, GE Capital Solutions key solutions leader.

“For the majority of cars, the amount of tax relief on the lease payments will increase.

"For cars with CO2 emissions over 160g/km, any benefit is likely to be eroded by the fact that the leasing company is likely to increase the rental costs for these vehicles.”

While a consensus exists that leasing is the way forward for most, the waters are far from clear.

“There is not yet any obvious consensus about how lease rates are responding to the tax changes – and separately how they are changing because of big fluctuations in residuals and funding costs,” said Stewart Whyte MD of Fleet Audits.

“In reality these are likely to swamp any changes because of the tax rules.”

Others agree: “We do not know how the leasing providers are going to modify their pricing to cover their capital allowance cost increases,” explained Dan Rees, Deloitte business car consultant.

“Lessors would most likely be looking to pass on any increase in their costs.

"However, we are increasingly seeing examples of pricing where lessors are taking different views on their cost models, the motivations of this being subject to speculation.

“The difficulty for the industry is to ensure that the potential extra costs incurred by the tax changes are covered by the pricing, but with commercial pressures to be competitive, not to price themselves out of the market.

"It seems reasonable to expect a period of rental consolidation as competitors examine each others’ positions, possibly creeping up in price through the year”

The situation “may take months to settle down” said Rees.

The disadvantages with outright purchase of cars exceeding the 160g/km benchmark are clearer.

“This is where the new measures will have the biggest impact, which is ultimately the Treasury’s express intention,” explained Kelly.

“At the point of disposal a large portion of the depreciation will remain in the pool and will take many years to feed through the corporation tax computations - the delay in receiving that tax relief has a cost to the owner.”

The Government’s intention to drive change by modifying company car tax is not without precedent.

“The rapid adoption of the diesel company car (following the change to CO2 based personal benefit taxation) is evidence that appropriately targeted taxation can alter the behaviours and choices of companies and their employees alike,” concludes Kingdom,.

This new tax system will result in a similar wholesale change in the UK’s company car fleet.

Advice

  • Carry out a comprehensive fleet acquisition assessment now
  • Build a car choice policy around the new tax rules
  • Introduce a 160g/km emissions cap - there are over 3,000 car models with CO2 emissions under 161g/km
  • Pay particular attention to cars with emissions just under 110g/km or 160g/km. The addition of some accessories - alloy wheels or roof rails - can easily push a vehicle over the emissions threshold figure and dramatically increase its whole-life cost
  • Be aware that it is the emission figure on the V5 registration document, not what is printed in the brochure that counts
  • If you must have high-emitters as a significant part of the fleet, do the sums carefully looking at all the factors. Consider the balance between changing acquisition methods and any actual savings to be made
  • Always use whole life cost calculations to set fleet policy and pay particular attention to tax implications of a particular vehicle
  • If you really want to future-proof your policy it might be worth capping CO2 emissions to 140g/km or below as it is the Governments intention to regularly review tax thresholds in line with CO2 emissions.

The good

  • Sub-11g/km cars offer substantial savings because of the 100% first-year writing down allowance, low VED rates and low BiK rates
  • Leased sub-160g/km cars priced above £17,000 will benefit most from the new tax regime

The bad

  • Lower priced cars just exceeding the 160g/km threshold
  • Outright purchase cars over 160g/km


If you
Lease cars over 160g/km
• Vehicles costing approximately £21,000 or less will be more expensive.
• But vehicles costing over approximately £21,000 will cost less after tax.

Outright purchase cars over 160g/km
• These will generally cost more because writing down allowances are restricted to 10% per annum.
• For cars costing over £12,000 there is no individual balancing allowance/charge at disposal – instead the allowance/charge is left in the pool and amortises to perpetuity.

Lease or buy sub-111g/km cars
• The cost of ownership reduces significantly for these cars.
• The impact will vary, but rental rates will decrease by up to 5% on these cars on 36-month contracts.


Fleet examples
A fleet of 100 cars between 161 and 200g/km CO2

  • will cost £67,900 more to outright purchase
  • will cost £58,080 more to lease
    (Assumptions: capital cost £18,000, residual value £5,400, 3-year change cycle)

A fleet of 10 high-polluting (over 220g/km) vehicles over £65k
 

  • will cost £14,280 more to outright purchase
  • will cost £19,296 LESS to outright purchase
    (Assumptions: Capital cost £70,000, residual value £28,000, 3-year change cycle)


What the experts said in full

Dan Rees business car consultant | Global Employer Services Deloitte, said:

“Lessors would most likely be looking to pass on any increase in their costs.
However, we are increasingly seeing examples of pricing where lessors are taking different views on their cost models, the motivations of this being subject to speculation, possibly influenced by a multitude of financial issues from other areas of their businesses.
The difficulty for the industry as a whole is to ensure that the potential extra costs incurred by the tax changes are covered by the pricing, but with commercial pressures to be competitive, not to price themselves out of the market.
It seems reasonable to expect a period of rental consolidation as competitors examine each others’ positions, possibly creeping up in price through the year despite residual values apparently suspending their decline and recovering.

Background info
The rules will be based on the CO2 emissions of engines.
Cars with emissions of 110g/km and below will attract 100% first year capital allowances, a significant tax advantage.
Those with emissions of 111-160g/km will be included in the main plant & machinery pool which attracts an annual writing down allowance (WDA) of 20%.
Finally, those cars with emissions of 161g/km and above will be grouped into a ‘special rate pool’ with an annual WDA of only 10%.
Under the previous accounting regime (which will continue for cars that were purchased prior to 1 April for Corporation tax purposes, or 6 April for income tax purpose, for a maximum of five years if not disposed of prior to that), a balancing allowance (or charge) was obtainable at disposal.
The implication of this is that 100% of the commercial depreciation of a car is recoverable over its life on the fleet.
Under the new regime, because cars are in asset pools, the balancing allowance no longer applies.
Because of this, unclaimed depreciation will remain in the pool after sale, which then takes years of writing down at either 20% or 10% (depending on emissions) to recover.
Cars all depreciate at different rates, but the rates at which HMRC allow businesses to claim tax relief against that depreciation is fixed at the 20% or 10%.
Therefore, cars that depreciate more heavily recover less tax relief over their lives on the fleet and will have a greater amount of unclaimed CAs remaining in the pool, which takes more years to recover and has a greater opportunity cost (the cost of depriving the tax relief from the business' core activities).
Depreciation is the enemy in terms of cost increases between the previous regime and the current one.

Lease or purchase
It is difficult to know for sure in commercial practice, but in theory leasing should be more cost effective than purchasing for sub 161g/km cars.
It could also be true for certain populations of cars 160+g/km, but we cannot effectively model this until we have sustainable pricing from lessors, which may take months to settle down.

Cost difference under new rules
Using a modest Weighted Average Cost of Capital (WACC) rate of 5% - used to value cost of funds.

161-199g/km cars
Purchasing: average rise is £803 (raise in WLC between buying in March and in April)
Leasing: average fall is £332 (drop in WLC between entering contract in March and in April) NOTE: this does not include any increase in the lease rental that might be applied to cover the lessor's capital allowances cost increase.

221+g/km band: (£65K - £80K)
Purchasing: average rise is £2,192 (raise in WLC between buying in March and in April)
Leasing: average fall is £3,456 (drop in WLC between entering contract in March and in April) NOTE: this does not include any increase in the lease rental that might be applied to cover the lessor's capital allowances cost increase.

Stewart Whyte, managing director Fleet Audits Ltd said:
“There has been a big focus on the changes to the tax rules for company cars, with most attention on the split between low-emitters (cars rated with CO2 160g/km or less) and high-emitters (cars at 161g/km CO2 or more).
But there is another axis of division that is important – the taxable status of the business itself.
It is fundamental that anything to do with tax relief has to relate to the tax liability.
And rather a lot of fleet operators actually do not have a relevant liability to pay corporation tax – so in some respects the whole matter of change is a bit irrelevant.
The important thing is that lower-emitters are always to be preferred, not only for tax reasons but because they should always cost less to run and will do less damage to the environment.
For any fleet where all or the majority of the fleet are lower-emitters, the impact should be minimal, whether they lease or buy.
Any tax liability will be on the best available basis under the rules for all businesses
Where it remains “essential” to operate higher-emitters, there are complexities in considering the options, not least for the transitional period from the current to the new systems.
Here, it is important to look at the detail of any price offered for leasing or purchase, at both pre-tax and after-tax levels.
There is not yet any obvious consensus about how lease rates are responding to the tax changes – and separately how they are changing because of big fluctuations in residuals and funding costs.
In reality these are likely to swamp any changes because of the tax rules.
But there are pitfalls.
While the basic rental on a large, expensive high-emitting executive car will increase significantly, the tax relief on the rentals will increase as against the current situation and there are already claims that these will become cheaper to run.
But that can only be established by a detailed before-and-after analysis of the pre-tax and the after-tax cost picture: if the fleet operator is not paying corporation tax in any event, the improvement in the tax treatment is academic.

The only advice to offer is this:

  • Select lower-emitting (160 g/km CO2 or less) wherever possible
  • If you have to select higher-emitters as a significant part of the fleet, do the sums carefully looking at all the factors. Consider the balance between changing acquisition methods and any actual savings to be made


Alastair Kendrick, tax expert, Mazars LLP said:

"The Treasury has confirmed that the proposed changes to capital allowances will be introduced in April 2009 in regard to all cars acquired after this date.

The changes mean that the level of relief which the owner of the vehicle can claim will be dependent on the CO2 emissions of that vehicle.
This is 10% for vehicles which have a CO2 emission above 160g/km and 20% for lower CO2 emission vehicles.
There are special rules for vehicles which have a CO2 emission below 110g/km which permit 100% relief. In addition to the change in the level of relief there is a fundamental change in how the relief is calculated with the formation of two car pools – one for cars with a CO2 emission above 160g/km and one for those vehicles with CO2 emissions between 111 and 160gms.
The creation of pools means that the owner of the vehicle will not get full relief on the vehicle during their period of ownership which is the position with the previous rules. This change means on disposal the sale proceeds will be taken in to account in the relevant pool but any additional relief will continue to be claimed year on year.
It is our estimate that this mean a significant time delay in getting the relief.
For those leasing cars the position is much more straight forward and they can get 100% relief for their leasing costs for a vehicle below 160g/km and relief of 85% of the costs for a vehicle above 160g/km.
The impact of these changes is the same regardless of the size of the fleet
The impact of the changes mean that on paper it will be beneficial to lease vehicles going forward however, it should be borne in mind that the leasing companies are likely to increase their costs to reflect time delay they will experience in getting their tax relief. This is going to make it more expensive to lease in many instances.
We are still awaiting the leasing companies to confirm how they will react to this time delay."


John Kelly, key solutions leader, GE Capital Solutions, said
“Increases in new car prices and uncertainty in the used car market is putting upward pressure on company car lease rates – the removal of the Expensive Car Leasing Disallowance provides an opportunity to offset these and make substantial savings.

PURCHASED VEHICLES: Overview
It has always been the case that companies can offset all of the depreciation incurred when owning vehicles against tax.
This is still the case.
However, the timing of tax relief will change for vehicles purchased after 1 April 2009.
Vehicles purchased prior to this date will continue to attract tax relief in the previous fashion.
For vehicles purchased prior to 1 April 2009, writing down allowances can continue to be claimed at 20% per annum of the reducing balance up to a maximum of £3,000 in any year.
When the vehicle is sold, any unclaimed depreciation can be claimed in the year of disposal. 
Vehicles with CO2 emissions of 110g/km or below enjoy 100% first year allowances
For vehicles purchased after 1 April 2009, the rules for writing down allowances will change.
Writing down allowances will still be claimed on a reducing balance basis.
For cars with CO2 emission between 111g/km up to 160g/km the writing down allowance will remain at 20%, and for cars with higher emissions writing down allowances will be available at only 10% per annum. The current £3,000 annual cap will also be removed.
The most significant difference however will be that there will be no balancing allowance for unclaimed depreciation when the vehicle is sold – any surplus will remain in the pool and continue to attract writing down relief on a reducing balance.

PURCHASED VEHICLES: 111g/km to 160g/km
The combined effect of the removal of the £3,000 cap and the balancing allowance will have a negligible impact on the overall timing of tax relief.
There will therefore be an insignificant impact on the after-tax cost of purchasing these vehicles.

PURCHASED VEHICLES: Over 160g/km
This is where the new measures will have the biggest impact, which is ultimately the Treasury’s express intention.
The reduced annual writing down allowance of 10% per annum and the removal of the balancing allowance means that at the point of disposal a large portion of the depreciation will remain in the pool and will take many years to feed through the corporation tax computations.
Although ultimately full tax relief will be available, the delay in receiving that tax relief has a cost to the owner.

PURCHASED VEHICLES: Summary
It can be seen clearly that the tax relief available for cars with CO2 emissions of 160g/km or below will not be significantly impacted after April.
However, cars with CO2 emissions over 160g/km will have significantly reduced tax relief if they are purchased after 1 April.
Companies should be aware of this additional cost when designing their car policies.

LEASED VEHICLES: OVERVIEW
The tax reforms are not restricted to companies that purchase vehicles outright.
There are also changes relating to the tax relief that companies can claim when they lease cars.
Prior to 1 April 2009, the Expensive Car Leasing Disallowance (ECLD) governed the proportion of rental payments that a company could offset against tax.
This mechanism was founded around a £12,000 price point.
For vehicles costing less than £12,000, full tax relief was available.
For vehicles costing more than £12,000 only a proportion of the rental payments were available for relief.
This proportion got progressively less as the cost of the vehicle increased.
From 1 April 2009 the Expensive Car Leasing Disallowance was replaced with a new CO2 based mechanism.
Again 160g/km is the pivotal number.
Companies are now able to claim full tax relief on rental payments where the car has emissions less than or equal to this level.
For cars with higher emissions, 85% of the rental payments will be available for tax relief.

LEASED VEHICLES: 160g/km AND BELOW
For cars costing less than £12,000 there will be no change – 100% of any rental payments will be tax allowable.
For any car costing more than £12,000 all of the rentals will also be allowable.
The removal of ECLD will mean therefore that cars delivered after 1 April 2009 will cost less to lease than cars delivered prior to that date.
For a car costing £20,000 this increase in tax relief equates to more than £300 per annum, rising to £500 for a car costing £25,000.

LEASED VEHICLES: Over 160g/km
For cars costing less than £17,000 there will be a reduced level of tax relief. For all other cars there will be an increased level of tax relief.
It may appear perverse to think that high emitting cars will cost less to lease after 1 April.
However, it is important to note that the monthly rentals charged by the leasing company for these cars are likely to increase as they pass on the impact of the delays in receiving writing down allowances.

LEASED VEHICLES: Summary
For the majority of cars, the amount of tax relief on the lease payments will increase.
For cars with CO2 emissions over 160g/km, any benefit is likely to be eroded by the fact that the leasing company is likely to increase the rental costs for these vehicles.

OVERALL CONCLUSIONS
The Treasury’s intention is to encourage the ongoing reduction in greenhouse emissions from cars used by businesses.
It seems clear that the reforms will indeed provide the required incentives for companies to select more environmentally sound vehicles for their fleet.
It should be noted that the improved tax relief available for leased cars will increase the appeal of leasing more generally when compared with purchasing.
Companies that currently purchase vehicles should revisit this decision – it may be that leasing now presents a lower overall cost.
There is considerable upward pressure on company car running costs at the moment and fleets are open to ideas on how to make efficiencies.
Building a car choice policy around the new tax rules is perhaps the biggest single move they can make.
By restricting car choice to sub-161g/km, companies will be able to make considerable savings on every vehicle, every year. It is an excellent opportunity to offset increases in lease rates that are inevitably starting to come into effect almost across the board.
However, if you really want to future-proof your policy it might be worth capping CO2 emissions to 140g/km or below as it is the Governments clear intention to regularly review tax thresholds in line with CO2 emissions.
Research that we have just carried out shows that general economic conditions and cost concerns are the two biggest worries facing fleet decision makers in 2009, and simple changes in car choice will play a large part in addressing these concerns.
Limiting car choice to sub-161g/km models involves very little compromise, with models available in most classes that are attractive to employees.
Most mainstream model ranges provide a selection of models that fall easily into this category but there are executive cars, MPVs and even 4x4s and sports cars that qualify.
Of course, this is not just also a means to make your fleet cheaper to lease but also cheaper to run through lower fuel costs and also much greener.
Drivers also potentially benefit through lower CO2-based benefit in kind taxation. It is a situation in which everyone wins.”

Alan Lunt, financial director Lloyds TSB Autolease said:
“The implications of the new capital allowance scheme are such that fleets should be basing their policies on the wholelife costs of ownership and paying particular attention to the taxation impacts.
Going forward, businesses will need to steer away from list price based fleet policies and may need to become more prescriptive about the vehicle choices on offer to their drivers.
This will ensure that an appropriate balance is maintained between cost, choice and responsibility.

Examples
1. A fleet of 100 leased cars all of which produce over 165g/km but less than 200g/km
Rentals will increase for these cars.
The increase will depend fundamentally on the price of the purchase price of the vehicle being leased.
For a fleet split 60:40 between essential user and perk cars this would typically increase by around 3%.
This would increase monthly rentals typically by £10,000 to £15,000 per annum.
Because the writing down allowance on these vehicles reduce from 20% to 10% from 1 April.

2. A fleet of 100 outright purchased all of which produce over 165g/km but less than 200g/km
As with 1 above the increase will depend on the purchase price of the car, the rate at which the company pays tax and the companies external borrowing rates (its weighted average cost of capital) so it is difficult to be precise about the costs.
However for a fleet split 60:40 between essential user and perk cars, a company tax rate of 28% and a weighted average cost of capital of 9% then these vehicles would cost approximately £25,000 more per annum, an increase of around 7%.
Again this is because the writing down allowance on these vehicles reduce from 20% to 10% from 1 April.

3. A fleet of 10 highly polluting (over 220g/km) over £65,000 cars
The new tax rules will increase rentals by approximately £3,000 per annum, an increase of around 2%.
However, because of the impact of the fixed leased rental restriction the post tax costs of leasing with the new tax rules will fall by around 6% i.e., by over £8,000 per annum.

4. A fleet of 10 outright purchased high polluting (over 220g/km) over £65,000 cars
The post-tax cost of ownership will increase by around 4-6% ie by around £6,000 per annum, because the writing down allowance on these vehicles reduce from 20% to 10% from 1 April.
In addition, there is no individual balancing allowance/charge at disposal.

What the changes mean to fleets that lease their cars
The impact can vary vehicle by vehicle but some high level results are:

Less than 160 (but greater than 111 g/km) emitters and below £12,000 list price
The impact is broadly neutral at both the pre and post tax level because these cars continue to get writing down allowances at 20% per annum and they do not incur a lease rental restriction in either the old or the new tax regime.

Less than 160g/km emitters and cost over £12,000 list price
These will be neutral at the pre tax (rental) level but after tax will be cheaper because the user will not suffer any lease rental restriction

Over 160g/km emitters
Rentals will increase for these vehicles because of the reduction in writing down allowances available.
Those vehicles up to approximately £21,000 will be more expensive after tax because they will also suffer a higher or comparable lease rental restriction.
Vehicles over approximately £21,000 will cost less after tax because although the writing down allowances available to the leasing company are lower the lease rental restriction is a flat 15% from 1 April.
The tipping point of £21,000 is approximate and will vary on the financial characteristics of the deal (cost, taxable list, rental).

What the changes mean for fleets that outright purchase their cars
Less than 160 emitters and below £12,000 cost are neutral because the company will continue to attract writing down allowances at 20% per annum.

Less than 160 emitters and cost over £12,000 will generally cost more relative to their cost under the old tax regime because writing down allowances are restricted to 10% and there is no individual balancing allowance/charge at disposal.
However, there maybe some instances where the post tax cost of ownership decreases.

Over 160 emitters
These will generally cost more because writing down allowances are restricted to 10% per annum.
For cars costing over £12,000 there is no individual balancing allowance/charge at disposal – instead the allowance/charge is left in the pool and amortises to perpetuity.

Sub-111g/km cars
Companies can write the whole of the purchase price off against tax in the year of acquisition.
This means that the cost of ownership reduces significantly for these cars. The impact will depend on the financial characteristics of the car being leased/used but rental rates will decrease by up to 5% on these cars for 36 month contracts.
This combined with a very low level of Road Fund License (no more than £35 up to 120g/km) and the benefit in kind rules mean that the tax advantages for very low emitting cars can make for some very low cost motoring for company car users.
Benefit in kind rules already in force include a 10% band for the scale charge for cars with a CO2 emissions figure of exactly 120g/km or lower.
These cars are called 'qualifying low emissions cars' in the legislation, QUALECs for short. The 3% supplement for diesels continues to apply to QUALECs."

 

Robert Kingdom, head of marketing at Masterlease said:
"The UK government is committed to linking all motoring taxes to the environmental impact of the vehicle.
Its latest move – affecting capital allowances and the lease rental restriction for company cars – is designed not only to influence new vehicle choice, but also to help ‘shape’ the future flow of used cars to the market.
The rapid adoption of the diesel company car (following the change to CO2 based personal benefit taxation) is evidence that appropriately targeted taxation can alter the behaviours and choices of companies and their employees alike.

What’s changed?
For company cars acquired from 1st April 2009 there are two changes.
Existing company cars, whether purchased or leased, will remain under previous rules for a period of up to five years – longer than the vast majority of replacement fleet cycles.

Capital allowances
The significant change sees the removal of the ‘balancing allowance/charge’ when cars are sold.
Under the previous regime this meant – effectively – that capital allowances for the depreciation of company cars could be claimed in full over the period of ownership. Under the new rules any balance of unclaimed allowances remains in a ‘pool’ which continues to be written down over time.
For cars emitting more than 110g/km CO2 and up to 160 g/km capital allowances can be claimed at 20% per annum.
For cars emitting over 160 g/km this falls to 10% per annum.
The impact depends on a number of factors, but for a typical fleet vehicle emitting under 160 g/km (and over 110g/km) this means it will take 10 years to claim 95% of the available capital allowances, but for a vehicle emitting over 160g/km this rises to more than 25 years.
So for businesses buying their company cars the delayed tax allowances effectively mean additional costs.
These changes will affect leasing companies too, so those customers may see rental increases, particularly for higher emitting vehicles.
100% first year capital allowances remain available for cars emitting 110g/km CO2 or less.

Lease rental restriction

In addition, the lease rental expensive car disallowance – which varies on a complex formula currently according to the vehicle’s price – has been replaced by a 15% rental disallowance for cars emitting over 160 g/km CO2, below which there will be no restriction.

Should I lease or buy?
To some extent this equation should still consider your individual business circumstances, but these changes do swing the balance more towards leasing.
The impact of the capital allowances changes (for vehicles emitting over 110 g/km CO2) will be felt regardless of acquisition method, either through the timing of capital allowances you are able to claim, or increased lease rates.
However leasing companies continue to be able to recover the VAT on car purchases and, despite the 50% VAT disallowance on the rental, this typically offers the lowest cost of acquisition.

What does this mean for my fleet?
These changes mean that all fleets should probably take the opportunity to review fleet policies.
Despite the apparent complexity what is clear is that choosing lower emitting vehicles will result in lower fleet costs, not just as a result of these changes, but also through reduced fuel and employers’ National Insurance costs.
There are benefits for your driver too, with lower emitting vehicles attracting lower benefit in kind costs, and reducing their own private fuel bills.

What’s changing?
From April 2009 the level of capital allowances that can be claimed for the purchase of motor cars will be determined by the vehicles’ CO2 emissions.
In addition, the lease rental expensive car disallowance – which varies currently according to the vehicle’s price – will be replaced by a 15% rental disallowance for cars emitting over 160g/km CO2, below which there will be no restriction.

How does this affect my business?
The impacts on business will depend on the choice of vehicles, current funding methods and individual circumstances.
In general, for most companies, the cost of running vehicles emitting over 160g/km CO2 will increase, in line with the government’s aim of using taxation to drive environmentally ‘friendly’ behaviour.
However the position is not entirely straightforward.
For those companies that use contract hire to acquire their cars, those with lower CO2 emissions that are priced above £17,000 are likely to benefit most.

What happens to my existing fleet?
The existing ‘expensive cars’ regime will remain in place for a ‘transitional period’ of five years.
Any balance of unrelieved capital expenditure after that time will be added to the general pool."