Fleets should think twice before trying to beat higher 20% VAT rate, which comes into force on January 4, 2011, by speeding up new vehicles ordering.

With lead-in times varying and in some cases pushing expected delivery dates well into 2011, fleets that try to bring orders forward may still find themselves falling victim of the new VAT rate.

“As we invoice each vehicle separately and VAT is charged on the day of registration, delivery times are a crucial factor for firms trying to avoid the higher rate,” a Ford spokesman confirmed.

“Currently, our lead times are around 12 weeks on large cars and up to 14 weeks on Focus, so orders would have to be placed by mid-September for vehicles to attract the lower tax rate.”

Other factors also need to be considered before firms rush to steer clear of the 20% VAT rate, warns Deloitte business car consultant Dan Rees.

“This hike should not be considered in isolation. In real terms, the 2.5% difference is not very expensive on the average car and it’s a mistake to believe that bringing ordering forward on outright purchases adds up to an automatic benefit,” he said.

“Residual values come into the equation because they could be lower at the end of the year than in a few months’ time. It’s also very important to make sure that the car being ordered is the right one to buy in the first place.

“Two cars might have the same P11D price, but if one has lower emissions, the difference in Class 1A National Insurance on the BIK might outweigh any benefit made by bringing the order forward. Choosing the more efficient model saves money anyway,” said Rees.

Mazars fleet tax specialist Alastair Kendrick, added: “Acting now would be beneficial on cars coming up for renewal, but the level of VAT depends on the date the transaction is carried out. You’d have to pay the new rate of VAT if you paid a deposit now and secured the deal after the change in the tax rate.”
 

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