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Budget Highlights
- Fuel duty increase postponed until October 2008
- There is to be a radical re-structuring of vehicle excise
duty from 2009. Bands to be increased from seven to 13, based on
carbon emissions - The standard rate to decrease for cars emitting 150g of CO2/km
or less, and will be increased to £425 for the most polluting
cars - Cars emitting below 130g/km will be charged the zero rate
during the first year, while the most polluting cars will pay a
first year sales tax of £950 - From 2009 there will be a new regime for business cars – with
cars emitting above 160g/km given 10 per cent writing down
allowance, and 20 per cent for those emitting below 160g/km. Leased
cars for the disabled will get 20 per cent regardless of their
emissions - No amendments to Approved Mileage Allowance Payments
(AMAPs)
An “interesting” Budget
Alison Chapman, tax partner at Deloitte & Touche told Motor
Finance: “This is an interesting Budget for the company car. Most
companies ignore their cars’ CO2 emissions because they assume that
CO2 only affects the driver. This, despite the fact that employer’s
national insurance contributions are based on the driver’s benefit,
which, in turn, is based on CO2 emissions of the car. Companies
will now need to bring tax into their calculations of whole life
cost – otherwise it won’t be the true whole life cost.”
Capital allowance changes
The corporation tax relief for company cars from 1 April 2009
will depend on their CO2 emissions. 160g/km and 110g/km will become
the key benchmarks. At the moment, 160g/km is the one that will
have an impact. There will be a big cost difference to the company
of a car with emissions of 161g/km compared to one with 160g/km,
all other things being equal.
“The changes will affect all users of company cars,” Chapman
said. “If the car is leased, the lessor will be affected by these
changes and will pass any additional costs on to the lessee.
Ignoring low-emission cars, there are two main changes. The 20 per
cent and 10 per cent rates are lower than the current rate of 25
per cent (even though this is capped) and the cars will be pooled
with other cars and assets.”
This means that there is no balancing allowance (or balancing
charge) when the car is sold. Instead the proceeds of sale are
deducted from the value of unclaimed allowances and the remainder
is claimed years after the car is sold.
She added: “When you model this, taking account the time of
money, the effect is significant. The 25 per cent rate will fall to
20 per cent in the intervening year although expensive cars will
still be in their individual pools.”
“In summary, 161+g/km cars will become more expensive than cars
up to 160g/km for a company to buy (or lease) in tax terms. As a
result I expect a range of cars to no longer have a market within
the mainstream company car arena, although it will take time for
companies to realise the effect. The question is – where the line
is drawn. Is it 170g/km, 180g/km or another number? However, there
will still be a place for high emission cars among the ranks of the
executives.”
Expensive car leasing disallowance
The expensive car disallowance will be re-named because the
rental restriction will relate to CO2 emissions and not the price
of the car. From 2009 the rental restriction will disappear for
cars with emissions of 160g/km or less.
“This will mean,” Chapman explained, “that it likely that an
ordinary company (i.e. full or near full VAT recovery) will be
better off leasing these cars rather than buying, because the VAT
rules favour leasing. However, there will be a rental disallowance
of 15 per cent for 161+g/km cars. The question is, whether it will
be better to lease or buy those cars and we won’t know the answer
until we model this.”
Sinister for leasing
John Lewis, British Vehicle Rental and Leasing Association
(BVRLA) director general argued: “We still do not know the full
details about [chancellor Alistair Darling’s] proposal for a rental
disallowance – that iniquitous and discriminatory weapon against
leasing – that will lead to a treble emission tax on some leased
cars.”
He added: “The very fact that government has not told us of its
real intentions in this area despite three consultations – I can
only conclude as being sinister.”
Stewart Whyte, director of ACFO was “disappointed” at the impending
changes to capital allowances. He said: “We see it leading to
finance departments pushing to reduce fleets overall – leading to
more cash allowance schemes with a probable rise in gross CO2
emissions overall as employees choose cars to suit themselves, not
company rules.”
AMAPs
Harvey Perkins, director of KPMG’s Company Car Team told Motor
Finance that the expected changes to AMAPs did not come about
because the government views dealing with the payments as a “can of
worms”. “The income of civil servants often depends on the
recompense of AMAPs,” he said, “and becoming involved with changes
to the payments became a far too challenging business.”
Chapman believes that AMAP rates were left unchanged because of the
effect of the fuel increases. “We maintain our view,” she stressed,
“that structured car schemes are almost never the correct answer
for the whole fleet. Again, modelling will be required to find the
solution.”
Vehicle Excise Duty (VED)
The RMI National Franchised Dealers Association was quick to
criticise the proposals for re-structuring VED.
Director Sue Robinson said: “The Chancellor is attempting to
encourage the motorist to move to lower emitting cars with the
increase in VED for large vehicles. He asserts that the
re-classification of vehicles into six new VED bands will force
motorists to choose lower emitting vehicles, but the inducements
are so small that the effects are likely to be equally small.”
Robinson called for the government “to do more to assist vehicle
manufacturers to develop cleaner vehicles”. She added: “Consumers
need to be given a proper choice, and manufacturers and vehicle
dealers need to be able to give it to them.”
Chapman believes that the first year rate of £950 for the
highest emitting cars from 2010 is, in itself, still not high
enough to influence an individual purchasing a new expensive
car.
“However,” she explained, “the second- and third-hand markets
are very different and may be unwilling to pay the standard rate of
£455 per year for these cars. As a result, the second- and
third-hand re-sale values may fall dramatically, and that may be
the factor that ultimately dissuades a new buyer.”
For companies, Deloitte believes that the situation depends upon
the size of the fleet. Across a fleet of cars, even the lower
first-year rates can mount up to a significant sum of money.
Chapman added: “This is another tax cost to go into the whole life
cost calculation which gives the company the impetus to encourage
its drivers into lower emissions.”
At the BVRLA, Lewis welcomed the fact that the Chancellor had
decided to vary first-year VED rates along CO2 lines. “The
important point,” he said, “is that he will not be harsh on the
owners of current vehicles as it will apply only to new
registrations from that date.”
“That said,” he added, “there may well be a problem for rental
companies wanting to hire out high polluting cars because, with a
six-month life cycle for such vehicles, it will be difficult to
recover the greatly increased VED over this short period. We need
to see more detail on this from the Chancellor and the DVLA before
we can understand exactly how this is going to work out.”
New car market by VED band 2001 v 2007 (total registrations and
market share)
|
New car market by VED band |
||||
|
VED band |
2001 |
% |
2007 |
% |
|
A |
103 |
0.0% |
544 |
0.0% |
|
B |
14,919 |
0.6% |
128,102 |
5.3% |
|
C |
568,579 |
23.1% |
785,955 |
32.7% |
|
D |
585,078 |
23.8% |
592,108 |
24.6% |
|
E |
507,064 |
20.6% |
418,097 |
17.4% |
|
F |
509,146 |
31.9% |
329,352 |
13.7% |
|
G |
272,479 |
n/a* |
149,849 |
6.2% |
| *G band introduced in 2006 for 225g/km+ CO2 emitting new cars Source: SMMT |
||||
Paul Ever itt, chief executive of the Society of Motor
Manufacturers and Traders believes the key to driving demand for
cleaner cars is to improve incentives in what are currently the
middle VED bands – which make up some three-quarters of new car
sales. He said: “We are encouraged therefore that the number of
bands will increase to 13 and we welcome the certainty that comes
with a system set until 2011.”
Towards a cohesive strategy?
Some industry players caught a glimpse of the bigger
picture.
Gary Killeen, commercial leader at GE Capital solutions, Fleet
Services said: “Taking the Budget and the King Review (on
low-carbon cars) together, it looks as though we have the
beginnings of a cohesive environmental strategy for cars in the UK
that covers both fleet and private vehicles.
The Chancellor and Professor King have outlined a series of
measures running from the beginning of a car’s life through its
fleet life cycle, and beyond that, which appear to be both
practical and worthwhile.”
Killeen argues that much of the thinking outlined appears to be
about encouraging drivers to opt for a greener model when they make
their new car choice. “It seems,” he said, “that in the short to
medium term a figure of around 130g/km of CO2 is the government’s
new target for fleets – as seen in the new 2009/2010 first-year
vehicle excise duty rates and the 2010/2011 company car
benefit-in-kind taxation rates outlined in the Budget. We believe
that this is a fairly practical figure that many fleets can work
towards.”
BUDGET REACTIONS
“The Treasury’s decision to reform business travel taxation is
consistent with wider fiscal policy to encourage greener motoring.
We are glad that the bands will be few and broad, and that some of
discrimination against leased cars will be removed. We look forward
to talking to the Treasury about removing the rest of the
discrimination before legislation in 2009.” – Stephen
Sklaroff, director-general, Finance & Leasing
Association
“Although we support the changes to reform capital
allowances, the HMT releases were light on the detail that we need
to fully assess the impact on the fleet market” – Jon
Walden, managing director, Lex
“Alistair Darling’s first Budget was not exciting. Yes, there
were some interesting elements in it but as far as the fleet sector
was concerned it was all a bit of a damp squib.” – John
Lewis, director-general, BVRLA
“Following the announcement in the Budget, the leasing
disallowance will be less punitive than it has been. This means
that customers who have historically bought expensive vehicles,
will now find contract hire a more attractive funding option.” –
Mark Chessman, deputy MD, Lloyds TSB
autolease
“Both employers and employees face a hike in costs for company
cars with CO2 emissions higher than 160g/km, with continued
increases in company car tax and new capital allowance rules that
will result in higher lease repayments from April 2009.” –
Neil Davies, director, Car Benefit
Solutions
“If you’re a company car driver or business with a fleet of
executive saloons with higher emissions (over 160g/km CO2), this is
last-chance saloon time. The longer you take to act, the more
costly it’s going to get. One thing’s for sure, now is the
time to review the number of higher emitting cars you have in your
fleet – or face significant increases in cost.” – Mark
Chessman, deputy MD, Lloyds TSB autolease
“The package of changes [to fleet taxation] is predicted in the
Financial Statement and Budget Report to yield an extra £505m from
businesses in 2009/10 rising to £810m in 2010/11. For employees,
increases in taxation and the private fuel scale charge are also
expected to increase tax revenues by £5m in 2009/10 rising to £105m
in 2010/11. Businesses should therefore start to plan now the shape
of future fleet policy in order to ensure that they continue to
drive the best value from the fleet and control rising costs.” –
Nigel Morris, senior manager, Deloitte & Touche
LLP
“I am deeply disappointed that the Chancellor has announced the
removal of the fuel duty rebate for biofuels from 2010. The lack of
long term consumer incentives for the use of high blend biofuels is
a clear indication of the Government turning its back on this
technology.” – Jonathan Nash, managing director, Saab
Great Britain
“The Chancellor is attempting to encourage the motorist to move
to lower emitting cars with the increase in VED for large vehicles.
It will be those who really need larger vehicles for their daily
lives that suffer most. Families, rural dwellers, farmers, and
business users are less able to absorb this increase, as they are
already paying extra to use their vehicles through fuel duty,
company car tax, and other measures.” – Sue Robinson,
director, RMI National Franchised Dealers
Association
“Once again, we see a change to tax allowances to encourage a
reduction in the environmental impact of cars used for business
travel. Taken alongside the emission based taxation rules for
Benefit in Kind and VED, I think we will see the average emissions
of fleet vehicles continue to fall. Fleet decision makers will
increasingly consider the environmental impact and cost of their
fleet together when designing fleet policy.” – Mark
Chessman, deputy MD, Lloyds TSB autolease
“There are still many unanswered questions surrounding the
concept of road pricing. As it is likely that the motor industry
would be in the front line of implantation it is vital that
Government consults with both motor retailers and manufacturers
before going ahead with any study on the issue.” – Alec
Murray, chairman, Retail Motor Industry
Federation
“Alastair Darling has done little more than a step to the left, a
step to the right, doing the time warp again, ending up not so very
far from where he started off, and not facing with much
determination in any particular direction.” – Professor
Rodney Barker, LSE
Motor Finance Issue: 41 – March 08
Published for the web: March 27 08 14:52
Last Updated: March 27 08 17:15
