Alastair Kendrick looks at the capital allowance changes
hidden in the 2009 Budget’s fine print.
The recent Budget press coverage is full
of stories about the proposed scrappage scheme which will helpfully
generate car sectors in these difficult times. It is a shame the
Budget did not contain any other good news stories for the
industry. In fact the Budget contained some areas of bad news for
those working in the leasing sector
The capital allowance changes which have been the
subject of much discussion have been introduced from the beginning
of the tax year, and the only revisions to what was proposed have
been to introduce some restrictions to prevent any tax planning to
avoid the impact of the change.
We have covered on a number of occasions the detail
of these rules and it is clear that generally they will add to the
cost of leasing (see MF May 2008 and December 2008), given
the time lapse for those owning vehicles in receiving the benefit
of the tax relief.
The whole idea of the capital allowance changes on
company cars was to bring them in line with the general rules
applying to other items, and therefore to simplify the tax year end
The shame from the Budget is that, while the
capital allowance relief for general plant and machinery was
doubled to 40 percent for the next 12 months, I cannot understand
why that same increase was not introduced to motors. This would
have helped to mitigate the increases otherwise arising and helped
to get the leasing industry working.
The other significant change announced in the
Budget is the lowering from 2011 of the 10 percent benefit in kind
threshold from 120g/km of CO2 to 115g/km, and the other adjustments
in this regard.
This seems to me a stealth tax which is introduced
by the back door under the banner of environmental taxation. It is
clear the 120g/km had been introduced to get motor manufacturers to
produce lower CO2 emission vehicles, and with so many now hitting
the sub-120g/km target, it was time for the goal posts to be
I do suspect that the impact of this change is that
this will impact on the viability of the salary sacrifice schemes
which are currently being promoted. These schemes have worked given
the low taxation on the sub-120g/km vehicles, and with the
benchmark being moved downwards, it will be interesting to see
whether these arrangements are still considered viable.
So there is not much in the short term to smile
about, and it will be interesting to see how the changes will
impact on employers and their company cars.
The author is director of employment
tax services at Mazars