What is the impact on Car Leasing of the June 2010 Budget?
The two main changes that will have an impact on leasing costs are the increase in VAT from 17.5% to 20% from 4th January 2011, and the change in capital allowances.
When a business is leasing a vehicle, it can recover 50% of the VAT on the finance element of the contract (100% on the Maintenance element). A company purchasing cars cannot claim back any of the VAT on the purchase if there is an element of private use, so any increase in VAT makes it more attractive for a business to lease a car or van than to buy it. The lease vs buy question has just become easier to resolve!
Contract Hire remains a method of vehicle acquisition that is attractive for businesses because the leasing company can recover the VAT on the purchase of a vehicle, and account for VAT on disposal as well.
The change in capital allowances means that companies purchasing vehicles with CO2 emissions up to 160g/km can only write down the cost at 18%, as opposed to 20% before the Budget. The figure for vehicles with CO2 emissions over 160g/km is 8%, down from 10% previously. These reduced writing down allowances should make car leasing even more attractive to businesses of all sizes.
Company Car Benefit In Kind Tax
The company car benefit in kind threshold changes that the previous Government announced remain on schedule at the moment, with progressive future changes favouring cars with low CO2 emissions. So, the lower the CO2 of your company car, the less company car tax you will pay. A future post will cover this topic in greater detail.
The long term plan is to continue to provide incentives to businesses to choose green cars which are kinder to the environment – the lower the CO2 emissions the better.
HM Revenue & Customs have provided this Company Car Tax Calculator to help you work out the amount of company car tax and car fuel tax you would have to pay.
Fortunately, the Chancellor did not increase the tax on fuel, although remember that there are still increases scheduled from the previous Budget.
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