The Chancellor’s pre-Budget report contained in its finer detail
some welcome clarification for vehicle lessors.
Coming changes to the regime governing capital allowances and
the lease rental restriction disallowance were set out in a little
more detail, which will reassure fleet providers and end-users who
are planning financial models for next year.
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Capital allowances
The PBR rubric confirmed the government’s commitment to moving
capital allowances to an “emissions-based approach” as of April 1
2009, with draft legislation to be published before the end of the
year.
In addition, cars leased before April 2009 will still fall under
the old “expensive” car rules for a transitional phase, to last
around five years. The British Vehicle Rental & Leasing
Association (BVRLA) commented: “This helpful clarification is very
much welcomed as all existing lease arrangements will be
grandfathered for up to five years.”
After five years – a period longer than the vast majority of
business car lease terms – “any expenditure remaining in a single
asset pool (unless there is any non-business use of the car) will
be transferred to the main capital allowances pool”, HM Treasury
said.
Lease rental restriction
As of April 2009, the lease rental restriction disallowance of
15 per cent of relevant payments will only apply to cars with CO2
emissions of 160g/km or over. Furthermore, only one lease in a
chain – probably the end lease, although this has not been fully
confirmed by the Treasury – will have the lease rental restriction
applied to it, something a BVRLA spokesman described as a “big win”
for the fleet industry. Now, for example, a broker or small lessor
can lease a car from a fleet operator and sub-lease it to an
end-user without the lease rental restriction applying to all links
in the funding chain.
“This helps to remove the current discrimination where all
lessees in the chain suffer a disallowance, including back to back
funding arrangements. Whilst we await confirmation, it is our
assumption that corporate customers renting a car emitting more
than 160g/km will be treated as the lessee suffering the
disallowance,” the BVRLA commented.
Previously the lease rental disallowance varied depending on the
cost of a car, with £12,000 the benchmark below which cars were
exempt from the penalty, and restrictions applying on a sliding
scale above that figure. Now, however, the sliding scale is to be
replaced by a “flat rate” arrangement with “only one application of
the 15 per cent blockage for lease rentals for the end customer”,
said Stewart Whyte, director of fleet operators’ association
ACFO.
This will hit different cars in different ways, Whyte pointed
out. For example, an expensive and highly-polluting vehicle such as
a Land Rover which would previously have suffered from a high lease
rental restriction – up to 40 per cent – now will see that penalty
reduced to 15 per cent. On the other hand, a cheaper car which
emits more than 160g/km of CO2 could see its lease rental
restriction rise from “a few percent” to the flat rate of 15 per
cent, Whyte added.
“There’s a problem brewing for businesses which, for example,
need to run large estate cars for the loads they carry,” Whyte
said. “With lead times – especially for large vehicles – an issue
for customers, fleets must now review their allocation policies so
they are ready for the changes to cars leased after April next
year.
“People need to get actively engaged in this process and give a
lot of thought to their funding policies,” Whyte concluded.
Jo Tacon
