Uncertainty and more uncertainty: fleets and supply chains face confusion around CO2 threshold warns expert
Fleets and company car drivers could face huge unexpected bills as a consequence of new rules on capital allowances coming into effect from April next year, according to leading fleet consultancy Fleet Audits.
The changes, which are based around a car’s CO2 emissions, will hit many companies that buy vehicles outright and all fleets that lease their company cars.
With effect from April 1, 2009 for corporation tax purposes (April 6, 2009 for income tax) expenditure on cars with CO2 emissions above 160 g/km will attract only a 10% writing down allowance (WDA) and expenditure on cars with CO2 emissions of 160 g/km or below will attract the normal 20% WDA common to all assets.
In addition to this, the 100% first year allowance for the cleanest cars will be extended from March 31, 2008 to March 31, 2013 and the qualifying CO2 emissions threshold will be reduced to 110 g/km from 120 g/km.
However, the main fleet focus is on the 160 g/km benchmark. It is estimated that an average upper medium sector car with a CO2 emissions figure of 160 g/km could be up to £30 a month cheaper to operate than a similar car with a CO2 emissions figure of 161 g/km.
But, the major problem facing fleet decision-makers – and also company car drivers – is that they will select and order their new company cars based on published CO2 data, which does not take account, for example, of optional accessories fitted to models.
A car’s official CO2 emissions figure for tax purposes is only confirmed once the Driver and Vehicle Licensing Agency issues the V5 registration document.
Stewart Whyte, managing director of Hampshire-based Fleet Audits, who identified the potential problem, said: “This could be a nightmare for fleets and leasing companies. A business and employee may quite innocently select a car with an emissions figure of, for example, 156 g/km only to find out it is actually a 161 g/km model when they receive the V5 document – up to three weeks after the car goes on the road.
“This will result in fleets and leasing companies having to look afresh at the entire whole-life cost calculation because the tax implications of the capital allowance changes will be significant.
“Outright purchase fleets will have to recalculate their writing down allowances, while leasing companies will look to recalculate monthly rentals.”
To overcome the problem, Mr Whyte said: “Obviously the first advice must be to try to use only models with CO2 emissions well below the 160 g/km level. That makes good commercial as well as taxation sense. But there are many fleet situations where bigger vehicles are needed for load capacity etc. – some larger estates and MPVs for example which are perfectly legitimate as company cars in many cases.
“The situation for leasing companies is much worse. If they build a quotation for a car with a published CO2 figure of say 157 g/km, they cannot simply assume that the V5 will never show a level higher than 160 g/km – and that completely changes the tax calculations and after-tax costs for both the leasing company and the client.
“To protect themselves, many lessors may find it simpler and safer to quote for any cars with a quoted figure of 155 g/km or more on the assumption that the figure is ‘above 161 g/km’, and base all whole-life cost and tax calculations around that figure. If the V5 then comes through at 160 g/km or below, the fleet operator should then be in for a windfall – if they follow through with a detailed analysis of the quote and the delivered car.
“The fact that the tax rates change at the cliff-edge of ‘160 good/ 161 bad’ means that a small mistake for cars in the rage 155-160 g/km could be very expensive for the lessors, so they have no real alternative but to play it cautiously. But this will increase the after-tax costs to the lessee, because the basic rental will increase and the flat-rate rental restriction will both cost clients.”
One client group likely to suffer from the changed system is public sector clients which need to lease cars over 160 g/km, for specific job-need functions. Although they have no tax allowances to worry about for their own business, the lease rental on such cars will increase sharply as against the current levels because of the reduced tax allowances for lessors – even before taking into account the higher VED and lower residuals for larger, higher-emitting models. So many public sector organisations will be just as hard-pressed to meet budgets as tax-paying private sector businesses, warned Mr Whyte.
The DVLA has advised Fleet Audits that there have been few challenges to an emissions figure shown on a car’s V5. However, the new capital allowance rules may herald additional inquiries by fleet operators and lessors into individual cases, for these corporation tax effects – and therefore possibly also on company car drivers’ benefit-in-kind tax payments.
Mr Whyte said: “This is not scaremongering. This could happen and fleet decision-makers and company car drivers must be aware of the possibilities. Fleets need to start making some big decisions about the allocation policy and funding methods before there is a chance of some big bills arriving.”
See also:
