How the Corporation tax reform will affect your company car fleet
From April 2009, there is to be a reform of the corporate tax regime for company cars, set to be the biggest change to fleet taxation in almost a decade.
The current legislation surrounding the cost of the vehicle will be scrapped, in favour of carbon emissions to give financial incentive to those companies who choose lower CO2 emitting vehicles.
Both capital and leasing allowances are to be affected by the new legislation.
Capital allowances are sums of money which can be deducted from a businesses profit each year in respect of long term assets it has bought (such as vehicles or machinery) prior to its tax being worked out.
Leasing allowances is the percentage of a Contract Hire and Leasing rental that is allowable for tax purposes using 'The Half The Excess Rule', a formula used by the Inland revenue (Section 35(2)Capital Allowances Act 1990) to calculate the allowable percentage. This rule is applied to cars with an Invoice price of more than £12,000 including VAT.
The new legislation sees the introduction of the 160g/km CO2 threshold.
This threshold will be the pivotal factor for the Capital or Leasing allowances that will be applicable to your company vehicles however you fund your company car fleet.
Purchased Cars
If purchasing their cars, a business can deduct 10% of a vehicles depreciating value each year from taxable profits if the vehicle emits 161g/km of CO2 or over. Vehicles emitting between 111g/km and 160g/km a business can deduct 20%. For those cars emitting 110 g/km or less a 100% first year allowance remains in place.
Cars go in to a 10% or 20% allowance pool according to their emissions. When sold, the sale proceeds are deducted from the pool but the balance of any remaining value stays in the pool and continues to be written down.
Cars can therefore continue to be written down for corporation tax purposes many years after they leave the balance sheet.
Leased Cars
Businesses that opt to lease their vehicles will be affected by the new legislation by means of a ‘lease rental restriction’, again centred on the 160g/km of CO2 threshold. Businesses can deduct the full cost of finance rentals from taxable profits if the car emits 160g/km of CO2 or less. On cars with emissions above the threshold, a flat rate allowance of 85% of the finance rental is then applied.
This improves the corporation tax position of higher priced cars acquired on lease agreements after April 2009, especially for vehicles with CO2 emissions of 160g/km or less.
BMW Efficient Dynamics means that we already have 71 models to offer with CO2 emissions of 140g/km or less.
For more detailed information on the 2009 tax reform or to discuss how this will affect your company car fleet. Please contact James Martin on 01733 707070 or 07736740474. Alternatively, please click here to email James.
The current legislation surrounding the cost of the vehicle will be scrapped, in favour of carbon emissions to give financial incentive to those companies who choose lower CO2 emitting vehicles.
Both capital and leasing allowances are to be affected by the new legislation.
Capital allowances are sums of money which can be deducted from a businesses profit each year in respect of long term assets it has bought (such as vehicles or machinery) prior to its tax being worked out.
Leasing allowances is the percentage of a Contract Hire and Leasing rental that is allowable for tax purposes using 'The Half The Excess Rule', a formula used by the Inland revenue (Section 35(2)Capital Allowances Act 1990) to calculate the allowable percentage. This rule is applied to cars with an Invoice price of more than £12,000 including VAT.
The new rules...
The new legislation sees the introduction of the 160g/km CO2 threshold.
This threshold will be the pivotal factor for the Capital or Leasing allowances that will be applicable to your company vehicles however you fund your company car fleet.
Purchased Cars
If purchasing their cars, a business can deduct 10% of a vehicles depreciating value each year from taxable profits if the vehicle emits 161g/km of CO2 or over. Vehicles emitting between 111g/km and 160g/km a business can deduct 20%. For those cars emitting 110 g/km or less a 100% first year allowance remains in place.
Cars go in to a 10% or 20% allowance pool according to their emissions. When sold, the sale proceeds are deducted from the pool but the balance of any remaining value stays in the pool and continues to be written down.
Cars can therefore continue to be written down for corporation tax purposes many years after they leave the balance sheet.
Leased Cars
Businesses that opt to lease their vehicles will be affected by the new legislation by means of a ‘lease rental restriction’, again centred on the 160g/km of CO2 threshold. Businesses can deduct the full cost of finance rentals from taxable profits if the car emits 160g/km of CO2 or less. On cars with emissions above the threshold, a flat rate allowance of 85% of the finance rental is then applied.
This improves the corporation tax position of higher priced cars acquired on lease agreements after April 2009, especially for vehicles with CO2 emissions of 160g/km or less.
BMW Efficient Dynamics means that we already have 71 models to offer with CO2 emissions of 140g/km or less.
For more detailed information on the 2009 tax reform or to discuss how this will affect your company car fleet. Please contact James Martin on 01733 707070 or 07736740474. Alternatively, please click here to email James.
