Better or worse? New capital allowance rules!

posted on Dec 14 2008 by Jade Hensby

Better or worse? New capital allowance rules!

The core message is that, with a few exceptions, leasing will be the most effective way to fund most company vehicles. The Treasury has released confirmation that the new capital allowance rules will not apply to cars already on fleets.

Doubts about the new tax implications were removed this week when the Treasury finally published clarification over changes to the capital allowances tax system, which come into force in four months time. Most will be pleased to know that the most significant clarification is that the new rules will apply only to cars put on to fleet after April 1, 2009.

A new system is being introduced for companies that lease their vehicles, they will be able to offset 100% of their leasing payments against their tax bill if the vehicle is at the 160g/km emission thresholdor below it. However, if a vehicle emits more than the benchmark amount, they will only be able to claim 85% against their tax bill. If you look at owning a vehicle compared to leasing, you will soon realise the most tax efficient cars from 1st April 2009 will be those that emit 160g/km or under.

Figures according to the BVRLA, the trade body for the vehicle rental and leasing sector, indicate 40% of cars currently on lease emit more than 160g/km of CO2, but it expects this to decline with the new rules. The organisation estimates that the proportion of sub-160g/km cars will reach 80% by next April, when the new rules come into effect.

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