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. 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.
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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.
Although 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.
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By GlobalDataFor 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.
