Deloitte’s Nigel Morris explains how the key changes to the Expensive Car Leasing Disallowance affects business cars following the Budget.
THE Government is determined to persuade us into greener business cars.
There have been significant changes to Corporation Tax, which are discussed in a separate Special Report. These fundamentally change the writing down allowances of purchased business cars.
In addition to this, the Expensive Car Leasing Disallowance (ECLD) will be re-named: the rental restriction will relate to CO2 emissions and not the price of the car.
From 2009 the rental restriction will disappear for cars with emissions of 160g/km or less.
This will mean that existing methods of determining whether to lease or buy a car will now need to include the CO2 impact.
We could see a business with full or near full VAT recovery potentially being better off leasing these cars rather than buying. However, there will be a rental disallowance of 15% for 161g/km+ cars.
The question is: is it better to lease or buy 161g/km+ cars? Businesses won’t know the answer until they model this after taking their business profile into account and accurately assessing whole life costs and discounted cash flows.
Other points to note from the Budget
The current 100% first year capital allowances for the cleanest cars (below 120g/km) will be extended for cars up to 110g/km from April 2009 to 2013.
Benefit-in-kind rule changes: the 15% band will commence at 130g/km from the 2010/11 tax year. This effectively increases company car tax by 1% for most bands.
AMAP rates – tax-free allowances for using private cars on business – were left unchanged, presumably because of the effect of the fuel increases.
The Vehicle Excise Duty (VED) changes: six new bands plus, from 2010, a “showroom tax”. The first year rate of £950 for the highest emitting cars is, in itself, still not high enough to influence someone purchasing a new expensive car. However, the second and third hand markets are very different and may be unwilling to pay the standard rate of £455 per year for these cars. As a result the resale values may fall dramatically, and so the impact on residual values may be the factor that ultimately dissuades a new buyer.
- See our news story Chancellor gives green light to contract hire
- Read Nigel Morris’ analysis of the budgetary changes to Corporation Tax
- Deloitte business car advice can be found at www.cartax.co.uk.
- This advice correct at time of posting – March 2008.