April capital allowance changes 'strengthen' leasing’s appeal

Changes to capital allowances on business cars from April is giving fleets the opportunity to cut costs by leasing thanks to significant wholelife costs savings, says CBVC Vehicle Management.

For executives choosing a Tesla Model 3, the leasing route could result in a business saving in excess of £5,200, or nearly £8,000 for a BMW X5 xDrive45e over the term of the lease when compared with purchasing the same vehicle, it said.

Within these significant allowance changes, which come into force in April, the 100% first-year allowance continues for cars with zero emissions until 2024/25 tax year.

However, cars qualifying for the main rate of 18% will now only benefit if they achieve CO2 emissions of 1-50g/km, while cars with CO2 emissions above 50g/km will be subject to a write-down allowance on a continuing balance basis of just 6%.

With the SMMT suggesting that the average CO2 emissions of the cars in the UK is 124.5g/km, this leaves a significant number of cars subject to the highest writing down allowance pool.

Mike Manners, managing director of CBVC Vehicle Management, said: “The changes to legislation concerning business car allowances, which are primarily designed to encourage fleets and businesses to move to zero-emission vehicles, plus the benefit-in-kind taxation and consequently Class 1A National Insurance changes, are significant for both fleets and drivers.

“When you consider all the relevant costs, including discounted cash flow, leasing works out more favourably. I would strongly encourage business fleets to reconsider their policies in light of these changes and take advantage of the bottom-line savings offered by a fully serviced lease.”

The savings for company car drivers, according to Manners, are equivalent to a salary rise. For example, he says that the driver of a diesel BMW 520d (P11D £43,540) would expect to pay company car tax amounting to £420 each month in the 2021/22 tax year at the 40% higher rate; the driver of a zero-emission Tesla Model 3 (P11D £43,490), meanwhile, would expect to pay company car tax of just £14.50 per month.

“For the business, the savings are also remarkable,” he said. “The employer’s Class 1A National Insurance payable on the 5 Series above is £5,227 over a three-year period whereas the employer’s Class 1A National Insurance for the Tesla 3 is just £179. That’s a saving to the business of £5,048 over the period equivalent to £140.22 per month.”

These major changes to business car allowances are designed to encourage fleets and businesses to move to zero-emission vehicles.

He continued: “To fully appreciate the savings, fleets need to also look at vehicles on a whole life cost or total cost of ownership basis to fully work through all the tax effects and potential fuel cost savings. Doing this exercise creates a driver pick list that satisfies both drivers and their employers.

“Multi-bid vehicle funding, switching drivers to EVs and NIC savings for businesses, can help fleets achieve significant savings.”