New rules on Capital Allowances on company cars came into force on April 1st 2009 and whilst they are designed to promote the use of “greener” vehicles, the ability of being able to offset 100% of your monthly Contract Hire or Leasing payment against your tax bill if you choose a car that produces less than 160g/km emissions, certainly makes Contract Hire & Leasing an even more attractive proposition, particularly if your vehicle costs more than £12,000.
These new rules will certainly impact on the way companies make decisions on what cars to use as choosing lower CO2 vehicles can represent a significant tax saving. Contract Hire shows real benefit of the changes with any vehicle that produces less than 160g/km CO2, whilst to get the major benefit in an outright purchase, you need to be running vehicles producing less than 110g/km although to even maintain your current allowances, you really must look to run the lowest polluting vehicles you can, because going over 160g/km, the capital allowance on outright purchase drops down to just 10%
These changes mean that some cars which would have been suited to a product like “Contract Purchase” will now be more cost effective on Contract Hire and it’s anticipated that many companies that previously purchased their cars in this way or through outright purchase will move towards Contract Hire.
To look at the changes, previously, with leasing or contract hire, whilst it was very effective (with over 1.5 million vehicles being operated by just the top 50 lease companies), there was what was known as “expensive car leasing disallowance” and if your car cost over £12,000, only part of the Contract Hire or Leasing rental was allowable against tax, but that’s been done away with in the changes which mean that if your car produces less than 160g/km, irrespective of the cost of the car, a massive 100% of your monthly leasing/contract hire rental can be offset against your tax bill.
In terms of actually buying a car, rather than leasing it, well that’s improved as well and had you purchased a car, the capital allowances on cars costing less than £12,000 was 25% p/a and for cars costing over £12,000 was just 20%. The new rules that are based upon the CO2 emissions and if you choose a car that produces less than 110g/km the entire cost of the car, can be fully taken into your tax computation. For cars over 110g/km, but below 160g/km allow you to take 20% into your computation and over 160g/km, that drops to just 10%.
There are also changes to balancing allowances. Currently a balancing allowance is available when the car is disposed of, under the new rules the writing down allowance will continue until the car is fully written off, even if the car has been sold.
It’s good to see that whilst we know that it’s the government’s intent to reduce emissions in every way that they can, that they are prepared to implement changes that actually benefit companies as an incentive, rather than banging them with a stick.
