[ Spotlight: Van leasing ]
Below are just a few points on the changes to expect in April that will impact on the market. 1) Capital allowances down from 20 per cent to 18 per cent for cars emitting 160g/km or less of C02
;
2) Capital allowances down from 10 per cent to eight per cent for those emitting more than 160g/km of CO2
; and
3) Annual investment allowance (AIA) down from £100,000 to just £25,000 per annum. A number of fleets have already changed, or are looking
to change, the way they fund their vehicles to ensure they’re still getting the best value for money. The increase in VAT from 17.5 per cent to 20 per cent, a reduction in capital allowances and proposed new accountancy rules are all having an impact. Doubts have already been raised over the future for employee car ownership (ECO) Schemes, with mileages, fuel costs and the administrative burden eroding potential savings. However, whether a fleet employs an ECO scheme,
outright purchase, or leases its vehicles, the continuing backdrop is one of cost reduction. Therefore, choosing a funding option that takes account of an individual organisation’s own unique set of circumstances – such as vehicle type, mileages driven and the tax profile – is essential. A Fleet News poll has revealed that 54 per cent of fleets have changed, or are considering changing, their funding method. One respondent revealed what has motivated them to reconsider how they’re funding their fleet. ‘Funding costs are increasing, but not in line with interest rates,’ he said. ‘Companies that can afford new vehicles are paying a premium to cover the losses that the banks have made.’ Another said: ‘Changes to VAT and a shortage of funds is pushing us towards contract hire rather than outright purchase.’ A shift towards contract hire is increasingly becoming
commonplace, because fleet operators that purchase their vehicles outright effectively add 2.5 per cent to the total acquisition costs of that vehicle, as the VAT cannot be reclaimed. Allied to a reduction in capital allowances from 20 per cent to 18 per cent for cars emitting 160g/km of C02
or less, and from 10 per cent to eight per cent for those
emitting higher than 160g/km, outright purchase looks even more unattractive for any business. In addition to this, the AIA, which is currently £100,000 per annum, reduces to £25,000 per annum on the same date in April.
Company car tax set to rise Because the drop in higher tax rate threshold increases costs, company car drivers may be pushed into the 40 per cent tax bracket. This would mean benefit in kind (BIK) tax could double from April. Anyone paid £42,475 a year will be forced to pay the higher rate of tax – down from £43,875. The Institute of Fiscal Studies says the change will affect up to 750,000 people. Another 850,000 may be brought into the higher bracket by 2014/15. Anyone who falls into the new threshold of higher tax
and drives a company car could see their BIK bill double, while some could see their costs rise by more than £1,000. For example, anyone driving a Ford Mondeo 1.8-litre TDCI Zetec will be paying £952 at the 20 per cent tax rate, but at 40 per cent this rises to £1,905. Even those driving smaller cars will be hit with extra cost.
A Vauxhall Astra Hatchback 1.7 CDTi S rises from £489 to £979, depending on which bracket you fall into.
Choosing a funding option that takes account of an individual organisation’s own unique set of circumstances is essential
How changes affect commercial vehicles Commercial vehicles can be allocated into either the AIA pot, or the plant and machinery pot. If they are allocated into the AIA, they qualify for 100 per cent WDA in the year of acquisition. Currently, a business has an AIA of £100,000 per annum; from April 2012, this will be reduced to £25,000 per annum. Any reasonably-sized business will quickly use up this £25,000 allowance, and any purchases over this amount will fall into the plant and machinery pot (except cars that emit more than 160g/ km of C02
). The plant and machinery pot is currently
written down by 20 per cent per annum on a reducing balance basis. This is due to be reduced to 18 per cent in April 2012. As commercial vehicles are generally used for business purposes, they tend to depreciate far more than 18 per cent per annum. This means that when you dispose of the vehicle, it is worth more in the business’s accounts than it actually realises. This shortfall used to be allowable against taxation
in the year of disposal, being known as a ‘balancing allowance’. This tax relief is now delayed after disposal, with the shortfall continuing to be written down on a reducing balance basis after disposal by 20 per cent per annum (18 per cent from April 2012). This has an impact on a business’s tax position, and
many businesses are now considering leasing commercial vehicles where they can offset the entire rentals against taxation during the lease period. (If the business is trading as a sole trader or partnership, this may be restricted to the element of business use of the vehicle – i.e., the private use element is disallowed.)
20 years of Vehicles For Business
Vehicles for Business (V4B), the ECA’s affinity partner for fleet services, celebrates its 20th anniversary in 2012 – 20 years of competitively priced service in the vehicle leasing industry, audited annually as a franchise by Network Vehicles Limited, a specialist division of Leaseplan, the world’s largest fleet management company, with 135,000 vehicles in the UK and 1.5m worldwide on contract. It specialises in providing small businesses and private individuals with vehicle leasing solutions through its exclusive network of franchisees, and has developed a range of products and solutions aimed at delivering the best in value and service. Vehicles for Business are also BVRLA members,
ensuring that it adheres to a strict code of conduct, guaranteeing its customers the highest possible levels of service. Vehicles for Business can offer free advice on a
multitude of aspects about fleet Management, whether it is taxation advice, accident management or health and safety, So whatever the query, just pick up the phone and ring on its dedicated ECA Freephone number: 0808 129 2222.
January 2012 ECA Today 67
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