Apart from the obvious benefits of contract hire there have also been changes to the way a company can generate tax relief from the business vehicles that they operate. New tax rules came into force in April 2009 that will change the make up of company car fleets forever. Whether the company buys or leases its cars all will be affected with only the low emitting cars avoiding heavy taxation changes.
The new capital allowance system is aimed at rewarding fleets that run cars that produce low C02. The bench mark figure is 160GPKM, but be aware this will reduce over the next few years so we recommend that you seriously consider a C02 closer to 140 gpkm to protect against these reductions. Whilst the system will benefit cars under 160 GPKM it will also penalise those that produce over this amount.
If you buy and dont lease the writing down allowance (WDA) on cars with a C02 over 160 gpkm will now only get a 10% annual WDA and cars below 160 gpkm will now get a 20% WDA. Both of these annual allowances are reduced from the old 25% or £3000.00 per year maximum. The cars below 160 gpkm will sit in the normal asset write down pool where all other equipment and machinery is allocated, but cars attracting only 10% WDA will sit in a "special rate pool"
When the vehicles are sold the sales proceeds can be deducted from the pool but the balance of any remaining value stays and will be written down year on year, which is calculated at the write down allowance of the specific pool. It is estimated that it will take , on average, 10 years to claim 95% of the available tax allowances of a car emitting below 160gpkm and 25 years for one above. This long calculation has overtaken the balancing effect that was previously used and allowed you to claim the loss on disposal all in one year.
This means that outright purchase fleets will suffer more, and also this does affect the leasing company and we do expect an increase in leasing costs however the way you can claim tax relief on the contract hire rental has also been changed.
Cars emitting below 160gpkm can now be claimed at a rate of 100% of the rental paid, and cars above 160gpkm receive a 15% reduction (Lease Rental Restriction). Typically cars under £12000.00 benefited from the 100% allowance and a car costing £60,000.00 only received 60% so as the reduction in vehicle C02 output increases more and more "expensive" cars will now attract the 100% tax relief rate. There are many vehicles that now benefit from this tax adjustment including models from Audi, BMW, Mercedes and Lexus. Of you want to check the C02 rate of your car you can view all the models on our website, or alternatively or contact one of our account managers.