Sneaky Chancellor piles on the pain!

Sneaky Chancellor piles on the pain!
March 8, 2018 CBVC
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By stealth I am afraid the government have effectively increased the Corporation Tax burden on company cars, even on what they class as Ultra Low Emission Vehicles (ULEV cars emitting 75 g/km CO2 and below).

For those purchasing cars outright/Hire Purchase/Lease Purchase/Contract Purchase:

Current CO2 Band Current Allowance % From April 2018 % From April 2018
0-75 g/km 100% pa 0-50 g/km 85%
76 -130 g/km 18% pa 51-110 g/km 18%
131 g/km and above 8% pa 111 g/km and above 8%

 

So if you are going to buy do it before April!

For those leasing cars the allowable % of rentals have also changed.

Current CO2 Current % of rental** From April 2018 % From April 2018
0-130 g/km 100% 0-110 g/km 100%
131 g/km and above 85% 111 g/km and above 85%

**Paid in financial year

Superficially this does not appear much, however when you run the numbers the difference is tangible. Our example below assumes a Vauxhall Insignia 1.6D which emits 114 g/km CO2 and has a non-maintained monthly rental of £300 per month including non-recoverable VAT.

Pre April 2018 Post April 2018
Rentals paid in financial year £300 x 12 £3600 £3600
Allowable % 100% 85%
Corporation Tax rate 19% 19%
Tax relief £684 £581.40
Net of tax cost £2916 £3018.60
Increased cost +£102.60 pa
Effective Monthly increase +£8.55 pm

 

This will be further exacerbated with:

  • The introduction of WLTP, real life emission testing, which is expected to take a raft of vehicles over 110 g/km and therefore out of the of the 100% allowance zone.
  • Altering OpRA (Operational Remuneration Payments) affecting those taking a cash allowance rather than company car for those having a flexible benefits package.

So what action should you take:

  • For clients with pick lists we must point this out and probably adjust pick lists to sub 110 g/km CO2 accordingly.
  • If you take out a lease and want maximum tax shelter, start the lease before the end of the March 2018 and put down as large an initial rental as possible which will be 100% allowable on cars up to 130 g/km CO2.

If this all seems rather complicated, please contact CBVC and we will help you through the increasingly convoluted tax changes.

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