but some relief
The Chancellor’s Pre-Budget Report (PBR) on October 9 brought
one surprise on business car taxation. After two successive rounds
of consultative proposals on capital allowances (CAs) and related
issues, it had been expected that final decisions would be
announced at this time, for implementation next April.
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Instead HM Revenue & Customs has merely published a summary
of the responses to its last consultation document issued in March
this year, with a promise of a decision on “future policy” in the
Budget statement due next March. The need for an adequate lead-in
time for any changes was stressed by many respondents in the
consultation exercise. So it is possible that the final
implementation of changes will now come in 2009.
For the moment, the government’s preferred option remains as
stated last March. This favoured a form of differentiation of CAs
in favour of low carbon emission cars, in place of the present bias
against cars above the £12,000 cost limit when new. Cars in the top
emission category could in future attract annual writing down
allowances (WDAs) of 10 per cent on the “reducing balance” basis,
which would lag far behind their true depreciation cycle.
The pattern of response to the last consultation was to a large
extent in line with the views of the finance industry, although
participation was much wider. Not all agreed that CAs are the right
variable for fine tuning on environmental grounds, given the
available instruments elsewhere in the tax system to favour lower
emission cars. The benefit in kind (BiK) PAYE charges on employees
with company cars, covering largely the same category as those
subject to CAs, have of course already been tilted against the high
emission models.
Most respondents supported the campaign of the motor leasing
industry for the abolition of the restriction of the deductibility
of lease rentals against the taxable trading income of lessees.
This presently applies above the £12,000 limit in addition to the
CA restriction. The last stated official preference was for
retaining the rental restriction in some form.
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By GlobalDataAlthough structural changes may have been deferred to a later
date, CAs for cars will still be reduced next April as part of
wider changes affecting all plant and machinery announced last
March. While reducing the corporation tax rate, Gordon Brown in his
last Budget as Chancellor announced a cut in the main WDA rate from
25 to 20 per cent from April 1 2008. This will affect cars, and
will apply to pre-existing assets.
For some sectors of car finance, the best news in the PBR is
that following separate consultations Chancellor Darling has
decided not to impose a BiK charge on employees benefiting from
employee car ownership (ECO) schemes. He also promised continuing
consultations with trade bodies on AMAPs (tax-free mileage
allowances) for employees using private cars on business. Where
employees receive car fuel benefits, however, he announced a 17 per
cent annual increase in the financial multiple for the carbon
emission based PAYE charges.
PBR RESPONSES
“We are pleased that, at last, the Chancellor has seen fit to
recognise Employee Car Ownership schemes for what they are –
genuine ownership schemes. However, while he has removed the threat
of treating them for benefit in kind, we are still enormously
concerned that, two years on, we are still awaiting the outcome of
the AMAP review. It is inconceivable why, after so long and despite
the amount of evidence provided by the industry, the government is
still keeping us in the dark.
“The increase in benefit in kind for private fuel will make a
further disincentive to run higher polluting vehicles and that will
at least be of some help to the environment.
“Failure to detail the long awaited changes to Corporation Tax
allowances serves merely to underline our disappointment in the
overall statement. Like AMAPS, the government has all the
information it could possibly want at its disposal. We completely
fail to understand the reason for any further delay.”
– John
Lewis, director-general, BVRLA
“Clearly the government recognises that organisations need a
number of ways to keep employees mobile, including ECO schemes and
privately owned cars. By endorsing ECO as a cost effective
business tool, the government is allowing companies to choose the
best business travel option for them to remain competitive.”
– Nick Sutton, chairman, Provecta
Car Plan
“The uprating of the fuel benefit charge will mean that even
fewer fleets will offer private fuel and this should cut carbon
emissions a little but this is a continuation of a policy that has
been underway for many years. It does not signal a sea change.”
– Andy
Leech, business leader, cfc
solutions
“I am pleased at the news on ECO schemes. On a number of fronts
the PBR underlines the government’s continuing commitment to green
policies. We should not lose sight of the fact that the company car
is the greenest on the road as things stand.”
– David
Brennan, managing director, LeasePlan
