Fleet decision-makers are both confused and concerned over the forthcoming changes in corporation tax rules as the clock continues to tick down to their introduction in April 2009.
That was the overwhelming consensus from two seminars organised by fleet operators’ organisation ACFO and sponsored by leading vehicle leasing and management specialist LeasePlan.
The confusion and concern expressed at the seminars held in Oxford and Bradford springs from the continuing failure of the Government to announce the final details of the capital allowances and the rental disallowance (currently called the expensive car disallowance) tax changes, the outline of which was announced in the Budget.
As a result, ACFO is demanding that HM Treasury publishes the full details of the new capital allowance rules for fleet cars in the 2008 Pre-Budget Report at the very latest. This speech is due to be held in the next few weeks, although a firm date has yet to be announced.
The key figure under the new rules is 160 g/km of CO2. Essentially, the complex new rules will make it more expensive for companies to run vehicles over 160 g/km irrespective of whether they lease or buy. Current projections indicate that the post tax net effect could see ‘effective’ costs for a company car increase by £20 per month or more on vehicles emitting over 160 g/km.
However, within that broad guideline there are numerous other factors such as the cost of funding that need to be taken into account in calculating vehicle operating costs. Full wholelife costs including the value of any tax relief will be required to establish the real costs to the business. As a direct result, many fleets will need to give serious consideration to their allocation policies if they are to avoid significant increases in costs at both pre-tax and after-tax levels.
The line-up of speakers included Alison Chapman, lead tax partner of the Deloitte & Touche Automotive Sector Group; Mark Norman, from used car valuation experts CAP; and Tim Hudson, Mike Brezel and Phil Henrick of LeasePlan, who between them explained the basis of the proposed tax changes and interpreted their impact on fleet operations at the seminars, which were welcomed by ACFO members attending.
Alison Chapman said: “The changes mean that every single model has to be examined for its tax impact. Employers who do not review their policies could well find the depreciation and funding elements of their fleet costs increase by up to 15% as a direct result of these changes, whether they lease or buy. It is likely that leasing may prove more attractive for some models.”
The interactive questions from the floor showed that fleet operators feel starved of information on the actions they should be taking now to reduce the impact of the changes on fleet costs, according to ACFO. It is clear that increased uptake of low-CO2 cars is the right way to go, while continuing to offer company cars that are also fit for purpose.
As the clock towards the introduction of the tax changes continues to tick there is also major concern from fleets about their ability to set up the necessary accounting and administrative functions to handle the tax changes at back-office level, according to ACFO. Lack of detailed information on the exact working and even the transitional arrangements have impacted on the leasing companies as well as fleet operators, with some uncertainty about how to deal with rental calculations for cars very near 160 g/km the threshold.
Additionally, it is not clear as yet how the changes will apply to cars currently on fleets, although the indications are that the measures will not be retrospective. Also, for some companies the measures may entail the introduction of new suppliers for both cars and services.
There is also uncertainty as to how the new rules will impact on car rental as there has been no HM Treasury clarification on the rules for these short-term cars. Roger Evans, of Avis, and Tom Brewer, of LeasePlan, who spoke at the seminars gave their views on how the changes may work through into both daily rental costs and availability of certain model types such as MPVs and large estate cars.
Julie Jenner, ACFO chairman who officiated over both events said: “Uncertainty rules among fleet decision-makers over the corporate tax changes and that is not good. ACFO has repeatedly urged HM Treasury in face-to-face meetings for clarity and to allow time for new measures to be implemented.
“Companies will shortly be ordering new cars that will not be joining their fleets until after the new rules come into effect. Therefore, it is essential that HM Treasury clarifies all issues so crucial vehicle-related decisions can be made in confidence that the most cost-effective and environmentally-friendly vehicles are chosen.”
Background information
Much of the confusion comes from the complete change in the basis of restricting capital allowances on some company cars. The current system has been in place since 1979. It is based solely on the price of the car, while the new system looks only at the CO2 emissions level.
The changes, which see the complete scrapping of current rules, will hit companies that buy vehicles outright and fleets that lease their company cars.
Currently, capital allowances on company cars work in two ways, with vehicles under £12,000 written down in a general pool, while vehicles of £12,000 and over are treated individually and their annual writing down allowance is capped at £3,000.
When cars costing over £12,000 are leased, a sliding proportion of their rental is also disallowed, based on the relationship between the actual cost of the car and the £12,000 tax threshold. These rental disallowances are permanent.
From April 1, 2009 expenditure on cars with CO2 emissions above 160g/km will attract a 10% writing down allowance (WDA) and expenditure on cars with CO2 emissions of 160g/km or below will attract a 20% WDA.
In addition the 100% first year allowance for the cleanest cars has been extended to March 31, 2013 but the qualifying CO2 emissions threshold has been reduced to 110 g/km from 120 g/km.
The rules affecting leased cars are being reformed in line with the new capital allowances rules. From April 1, 2009, all leased cars emitting more than 160 g/km will have a flat rate 15% of the relevant payments disallowed.
