DON’T hesitate. If you want to buy a new business car, do so now before the standard rate of VAT goes back up to 17.5% on 1st January. Otherwise your business could forfeit an automacic 2.5% saving.
On average, the VAT change will push up the price of a £20,000 car by around £500 reckons Tim Wait, director of CarQuake, a new car website. Wait reckons ‘Buy Now, Don’t Pay Later’ should be the new mantra for car buyers.
“Many business buyers don’t realise how important timing is,” continued Wait. “If you order a car in December and it’s delivered in January, you’re likely to be making your main payment in January – whether it’s cash or on credit. And therefore you pay January’s VAT. And the time to avoid that scenario is now.”
Wait says there are good reasons to buy a new car in the next 4-6 weeks:
- Only 15% VAT to pay if you buy your new car before the end of 2009
- Strong second hand market for used cars, ensuring that you get a good part exchange price
- The opportunity (to participate in the government Scrappage scheme
- The possibility of avoiding manufacturers’ 2010 price increases
However, the VAT will impact on small business outgoings whatever the method of financing.
“The VAT increase will have an effect on those business owners who run their cars through personal leases, with monthly rates reflecting the 2.5% rise,” said Jeff Peyton-Bruhl, national fleet manager, Hyundai.
“Those businesses using contract hire will be less affected, however, since 50% of the monthly VAT rental can be reclaimed,” added Jeff.
Businesses buying a car can make further savings. By purchasing a business car with CO2 emissions below 110g/km they can benefit from substantial cash flow savings thanks to the availability of a 100% first year writing down allowance.
For more on the writing down allowance savings available download our free guide to The BIG tax change.
Have your say
Are you planning to beat the VAT man and buy a car before the rise? Vote now.
Buy now and avoid the VAT increase
