Company Cars – to lease or buy, that is the question
The tax implications when planning a vehicle lease or purchase have recently changed. Paul McGerty, partner at Chester-based chartered accountants and business advisors McLintocks, negotiates the tricky question of ‘to lease or buy’.
“Did you know that you could now claim 100% tax relief on a BMW 3 Series whilst only 10% on a BMW X5?
Significant changes have been made in recent years in the way that capital allowances can be claimed on company cars.
The treatment of cars is no longer based on the list price, but on the g/km CO2 emission figure. In addition to this the allowances available have been significantly reduced for cars with higher levels of emissions – effectively, the Government’s taxation stance favours ‘green’ vehicles.
There are three main bands of emissions for purchased cars: below 110, 110 to 160 and above 160.
Cars with emission levels below 110 currently get a 100% first year allowance. With this beneficial tax regime, car manufacturers have produced vehicles below this level including the aforementioned BMW 3 Series.
Cars with emission levels above 110 up to 160 go into the main pool. They are not eligible for first year allowances, but there is no cap on the cost, so for example a Ford Mondeo with a cost of £17,000 would go into the main pool. The writing-down allowance (the annual tax relief) on the main pool is currently 20% and is planned to reduce to 18% from 1 April, 2012.
Car with emission levels above 160 go into a special rate pool, which currently has a writing-down allowance of 10% which reduces to 8% from 1 April, 2012.
The tax impact of this cannot be understated: as these vehicles are now in a 'pool' of assets with a balancing allowance (or tax ‘write off’) can only be claimed when the company ceases to trade. This will likely have the effect of creating a large balance of unused tax allowances within this pool since vehicles are normally disposed of for a lot less than the cost.
There’s also no surprise the way in which leased cars are treated has also changed, with the treatment again being based on the emission figure (the ‘green’ taxation stance again).
The banding for these is split above and below 160 g/km CO2. If the emissions figure is 160 or less, the lease costs are allowed in full and if the emissions figure is above 160, a straight line 15% of the lease cost is disallowed. In most instances this results in a significantly lower disallowance than that which would have arisen under the old rules, particularly for higher value cars.
As a result of the above changes in legislation the taxation treatment of leased cars has become a lot more favourable and maybe the question whether to lease or buy might be a bit easier to answer.”
As always however, if you have any questions on whether to lease or buy and the tax implications thereof, please feel free to call Paul McGerty on 0845 680 700 or email: firstname.lastname@example.org
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