Car Leasing, VAT & Capital Allowances - The UK June 2010 Budget Effects

UK Chancellor George Osborne’s Emergency June 2010 Budget affects all businesses and individuals who are currently leasing a vehicle, or are thinking about Car Leasing or Contract Hire for the first time.

Read how the proposed Budget VAT increase and changes to Capital Allowances will affect your financial situation when they come into effect, and how Car Leasing is becoming even more attractive to businesses. As a company car driver, find out how you are affected by changes in Company Car Tax Benefit In Kind and Car Fuel Tax.

What is the impact on Car Leasing of the June 2010 Budget?

The two main changes that will have an impact on leasing costs are the increase in VAT from 17.5% to 20% from 4th January 2011, and the change in Capital Allowances. Also, Company Car Tax and Car Fuel Tax have upcoming changes.

Firstly, let’s consider the VAT issue

When a business is leasing a vehicle, it can recover 50% of the VAT on the finance element of the contract (100% on the Maintenance element). A company purchasing cars cannot claim back any of the VAT on the purchase if there is an element of private use, so any increase in VAT makes it more attractive for a business to lease a car or van than it is for them to purchase the vehicle. The car leasing vs buying question has just become easier to resolve!

Contract Hire remains a very attractive method of vehicle acquisition for businesses. The reason that leasing companies can offer low rentals is because they can recover the VAT on the purchase of a vehicle, and account for VAT on disposal as well.

Changes in Capital Allowances make Car Leasing more appealing

The change in Capital Allowances means that companies purchasing vehicles with CO2 emissions up to 160g/km can only write down the cost at 18%, as opposed to 20% before the Budget. The figure for vehicles with CO2 emissions over 160g/km is 8%, down from 10% previously. These reduced writing down allowances should make car leasing even more attractive to businesses of all sizes.

Changes in Company Car Benefit In Kind Tax

There are many benefits of leasing a car for businesses and private individuals. However, as a company car driver, you are liable for Company Car Tax, otherwise known as Benefit In Kind Tax.

The Company Car Benefit In Kind threshold changes that the previous Government announced remain on schedule at the moment, with progressive future changes favouring cars with low CO2 emissions. So, the lower the CO2 of your company car, the less company car tax you will pay.

The long term plan is to continue to provide incentives to businesses to choose ‘Green Cars’ which are kinder to the environment – the lower the CO2 emissions, the better.

Changes in Fuel Tax

Fortunately, the Chancellor did not increase the tax on fuel, although remember that there are still increases scheduled from the previous Budget.

You can find out more about Vehicle Leasing and whether it is right for you at Car Leasing Guide.

Readers should note that all the above information is applicable to Car Leasing and Contract Hire in the UK only.

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