Organisations that run company cars need to understand the cost implications of these changes, which are likely to be considerable in the case of capital allowances and prepare accordingly.

1. Reform of capital allowances and leasing disallowances

Next April’s reform of corporate tax reliefs for company cars is the most profound change in fleet taxation since the Government linked Benefit-in-Kind tax to CO2 emissions in 2001. The new capital allowances system will allow businesses to:

– claim 100% of the value of cars emitting 110g/km CO2 or less in the first year of ownership.
– place company cars emitting between 111g/km and 160g/km of CO2 in a pool where they can deduct 20% of each vehicle’s depreciating value each year from taxable profits.
– set 10% of the depreciating value of vehicles that emit 161g/km CO2 or more against their profits each year.

Cars sub 160g/km CO2 pool

Unlike the current system for writing-down the value of company vehicles, cars delivered after 1st April 2009 will remain in their CO2 pool after they are disposed-of. For a typical car in the sub 160g/km CO2 pool, around 20% of its original cost will remain in the pool after disposal proceeds are removed, and it will take around 11 years to claim 90% of this balance – or "tail" – against tax.

Cars over 160g/km CO2 pool

For cars in the over-160g/km CO2 pool, which tend to realise proportionally less money on disposal, the tail will be larger and therefore take longer to claim against tax – typically more than 20 years to claim 90% of the balance. The difference in the level of writing-down allowance and the length of the respective tax relief tails will create an increase in car ownership costs at the 160g/km CO2 threshold. At the same time, the Treasury will also change the system of leasing disallowances, which will allow businesses generally to deduct more of their car leasing costs from taxable profits. The current Expensive Car Leasing Disallowance will be abolished and replaced by a Lease Rental Restriction, which will allow businesses to set the

Key changes to Vehicle Excise Duty Bandings and Rates

Cars registered between 1st March 2001 and 23rd March 2006, emitting more than 225 g/km CO2 will be moved into new band K in 2009 and remain there for the duration of 2010. This will allow these drivers to continue to enjoy exemption from the top rate of VED.

Current Vehicle Excise Duty rates for cars registers on or after 1st March 2001
VED band CO2 emissions (g/km) 2008/09*
A Up to 100 £0
B 101-120 £35
C 121-150 £120
D 151-165 £145
E 166-185 £170
F** Over 185 £210
G Over 225 £400

full cost of contract hire rentals against tax in respect of cars under 160g/km CO2, irrespective of the car’s price. At present, only rentals on cars costing less than £12,000 are fully deductible.
For cars above 160g/km CO2, rentals will be deductible except for a flat portion of 15% of the rental, which will be disallowed and therefore remain taxed. Compared with the current sliding scale of leasing disallowances for cars over £12,000, the new system will make it cheaper than at present to lease any car costing more than £17,430 regardless of its CO2 rating.

Page 1 of 2 :: First | Last :: Prev | 1 2 | Next