Fleets fail to act with new corporation tax rules looming

Companies will face significant increases in their corporation tax bills from April 1 if they fail to reflect changes in business car capital allowances in company car choice lists.

With the clock ticking towards the deadline for fleets to make the changes, anecdotal evidence from fleet operators’ organisation ACFO suggests that many organisations have still to take action.

The key figure under the new capital allowances and the rental disallowance (currently called expensive car disallowance (ECLD)) tax rules is 160g/km of CO2.

Essentially, the complex new rules will potentially make it more expensive for companies to run vehicles over 160g/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 as much as £30 per month or more on vehicles emitting over 160g/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.

ACFO chairman Julie Jenner said: “While the issue has registered with fleet decision-makers, requests for information at ACFO meetings indicate that among some fleets there is a lack of urgency to amend car choice lists to take account of the changes.

“With Britain in the grip of recession and all businesses focusing on cutting costs, amending fleet choice lists to reflect the tax changes is a surefire way to save money.”

In the autumn, ACFO hosted two tax seminars sponsored by leading vehicle leasing and management specialist LeasePlan, at which speakers queued up to advise the packed audience on the actions required to limit their financial exposure.

At the time, Alison Chapman, lead tax partner of the Deloitte & Touche Automotive Sector Group, 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.”

Ms Jenner added: “Cars now being ordered may, in some cases, not be registered until after April 1. In that case they will be subject to the new tax rules and if over 160 g/km they will in all likelihood be accompanied by an increased tax bill, which given the economic downturn companies can ill afford.

“The number of new cars in the marketplace with emissions levels below 160 g/km is now huge so there should be no excuse from fleet decision-makers over vehicle availability. Whether a junior salesman or a board director the choice of cars available that have CO2 emissions below the new tax threshold should meet all requirements.”

ACFO is also advising fleet managers to be ‘on the safe side’ and ideally compile choice lists featuring models with CO2 emissions well below the 160 g/km level.

ACFO director Stewart Whyte said: “A business may quite innocently select a car with an emissions figure of, for example, 156g/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 having to look afresh at the entire wholelife cost calculation because the tax implications of the capital allowance changes will be significant. The fact that the tax rate change is 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.”