Business

Tax Reforms Deny “First Year Allowance” To Car Leasing Companies

In March 2012, the government announced wide-ranging reforms to the tax system.
One aspect of these reforms has affected the treatment of capital allowance on business cars (the amount businesses are able to write off against their taxable income).

Crucially, car leasing companies will also be excluded from the 100% first year allowance altogether.
Volvo Car UK explains these changes: “Currently, for a business buying a car, a ‘first- year allowance’ of 100% is available provided the car has a CO2 emission of 110g/km or less. Cars with emissions between 111g/km and 160g/km enjoy capital allowances at the main rate (18%) and higher emission cars attract writing-down allowances at the special rate (8%).

Understanding this regime and focusing on sub-110g/km cars has provided Volvo with strong tax-efficiency messages complemented by competitive rentals resulting from the cash flow advantages to VCL. However, this regime is set to change. Firstly, the announcement stated that the first- year allowance for low emission cars would be extended to 31st March 2015. Secondly, the 110g/km threshold would be reduced to 95g/ km and the 160g/km threshold for the main rate would be reduced to 130g/km – all effective from 1st April 2013. But importantly, it was also announced that the first-year allowance would be denied to leasing companies

A spokesman from the British Vehicle Rental and Leasing Association (BVRLA) said:

The continuing application of the Lease Rental Restriction acts as nothing more than a double emissions tax on our customers. We will be vigorously lobbying to have this unfair fleet tax removed

There are serious benefits for companies to purchase business cars now, before these changes become effective in April.

THIS MEANS THAT AFTER 1ST APRIL 2013:-

• Fewer cars from all manufacturers will fall into the ‘first-year allowance’ band.
• Leasing companies will lose the cash flow advantage of 100% capital allowances (the main rate of 18% and special rate of 8% will apply).
• Leasing companies will reflect the cash flow disadvantage in their rentals.
• Leasing rentals will increase for cars delivered after 1st April 2013.
• Leasing companies may increase their costs well before 1st April 2013 assuming the car will be delivered after 1st April 2013.
• Leasing companies may be able to offer pre-April 1st 2013 costs provided the car is delivered before 1st April 2013.
• Businesses are likely to adopt the new thresholds as ceilings/groupings for cars.
• Some business buyers may switch from leasing to buying for cash or PCP as they will be able to continue to enjoy 100% capital allowances.

FOR MORE INFORMATION VISIT THE FOLLOWING LINKS:

Changes that affect businesses: https://www.volvocars.com/uk/sales-services/sales/business-sales/CO2/Pages/default.aspx

Changes that affect Company car drivers https://www.volvocars.com/uk/sales-services/ sales/business-sales/CO2/Pages/driver.aspx

https://www.volvocars.co.uk

volvo-logo

Leave a Reply

Comments are closed.

Register an Account