CO2 policies help fleets negate leasing tax change

A downward trend in fleet CO2 emissions will help the majority of fleets escape the impact of new rules affecting the tax efficiency of leased vehicles.

Less than one in 10 fleets (8.7%) average more than 130g/km in their new car order book, with most (78.3%) achieving less than 120g/km, according to a Fleet News poll.

Currently, cars with emissions of 160g/km or less face no rental restriction, but cars above that figure face a 15% restriction.

However, from the new tax year in April, this threshold will be reduced to 130g/km, meaning that for cars with emissions below 130g/km companies can still offset 100% of the lease rental against corporation tax, but for those above 130g/km the amount is restricted by 15 percentage points to 85%.

The 160g/km CO2 threshold was introduced for the first time in April 2009. Since then, many companies have used it to set their maximum carbon threshold in order to maximise the tax benefits.

For most fleets, it’s therefore expected that 130g/km is likely to become the key benchmark, with the figure being used as an emissions cap for any vehicles joining the fleet to ensure they are as tax efficient as possible.

Figures from tax experts BCF Wessex reveal the potential impact on a business of ordering vehicles above the new 130g/km threshold.

Using a Skoda Superb with emissions of 151g/km as an example, BCF Wessex said the loss of corporation tax relief on lease rental restriction would equate to an increased tax cost to the business of £15.96 per month.

For a fleet taking delivery of 150 vehicles emitting 151g/km after the April tax change, that would equate to the company having to pay an additional £28,728 annually to the taxman.

But with fleets already recognising the need to drive down emissions, the vast majority have been making the necessary changes before the new threshold takes effect.

Paul Lippitt, principal consultant at Lex Autolease, said: “The forthcoming tax changes have the potential to significantly increase wholelife costs for company car fleets.

“However, many of our customers have already taken action to mitigate these effects by ensuring the majority of their vehicles are already below the 130g/km threshold.”  

The leasing giant told Fleet News that the majority of its corporate customers have been operating low CO2 emission company car policies for some time.
“As a result, we have not seen a significant change in delivery profile since the 130g/km threshold was announced last March,” added Lippitt.

“Instead there has been a continued and gradual increase in the percentage of vehicles acquired with CO2 emissions below this level. 

“For example, in the three months to March 2012, 83% of deliveries were at or below this level, whereas for the three months to December 2012, this figure increased to 87% of deliveries.  

“This continued downward trend in running low emission vehicles is also evident from the existing fleet profiles of our corporate customers.

“The average emissions for company cars delivered during the first quarter of 2012 was 119g/km. This figure has reduced to 116g/km in the first two months of this year.”

The tax changes will affect cars delivered from April 2013 – cars which have already been delivered by this date won’t be affected.

Mike Brazel, specialist funding and tax consultant at LeasePlan UK, said: “Fortunately, there is now a trend for the Government to announce policy changes a few years in advance of their actual introduction

“This allows companies and company car drivers to make informed decisions on the cars they choose, as many are leased on a three- or four-year term.”

Since the changes were announced in Budget 2012, LeasePlan has been advising customers on how to minimise the cost impact of the new legislation.

“The key for leasing providers is to help customers understand the implications of the changes and reassess their fleet policy to get the right balance of CO2 considerations and costs, while still meeting the key requirements for their company car,” explained Brazel.  

“The introduction of the 130g/km threshold was no surprise when it was announced last year, and reflects a wider trend to incentivise lower carbon vehicles

“We have been recommending sub-130g/km vehicles to our customers for some time.”

Figures reveal tax implication

Figures from tax experts BCF Wessex reveal the potential impact on a business’s bottom line if ordering vehicles above the new 130g/km threshold.

Using a Skoda Superb with emissions of 151g/km, BCF Wessex explains that the loss of corporation tax relief on lease rental restriction would equate to an increased tax cost to the business of £15.96 per month.

For a fleet taking delivery of 150 vehicles emitting 151g/km after the April tax change, that would equate to the company having to stump up an additional £28,728 per year to the taxman.

In business terms, where a company hopes to achieve a 10% profit margin that would mean it would need to achieve an additional £290,000 in sales to simply cover the increase in costs.

Factfile

Skoda Superb 2.0 CR 170 Elegance Estate

CO2 emissions: 151g/km
List price: £26,165
Effective rental: £462.75 pm
Loss of corporation tax relief on lease rental restriction – 2013/14 monthly equivalent (£462.75 x 15% x 23%): £15.96 per month