SMALL businesses should consider bringing forward new business car decisions to beat the VAT rise.

From January 04, 2011, VAT will rise from 17.5% to 20% as a result of measures announced in the emergency Budget (June 22). Companies and the self-employed cannot reclaim VAT on business car purchases.

The VAT rise will also increase fuel costs and overall business costs, warns the Association of Car Fleet Operators (ACFO).

“The increase in the rate of VAT will clearly increase the cost of new cars, fuel and servicing, maintenance and repairs,” said Julie Jenner, chairman of ACFO.

“As a result, I would anticipate a ‘pull forward’ of orders to 2010 so that the higher VAT bills associated with the purchase of new cars are avoided,” Ms Jenner added.

ACFO said that it welcomed the Chancellor’s decision not to raise fuel duties over and above the increases announced in the March Budget, even though the VAT rate rise would impact the running costs of small business company cars and those of the larger fleet operators.

“However, the VAT increase taken together with associated changes in VAT disallowance rates, the reduction in capital allowance rates, the reduction in corporate tax rates, the increases in National Insurance rates and the changes in personal allowances is likely to trigger vehicle funding reviews across the board,” continued Ms Jenner.

“Currently ACFO does not anticipate the collective changes to trigger any widespread favouring of company car purchasing, company car leasing, or any of the myriad of cash alternative options available including employee car ownership schemes or salary sacrifice. However, it seems likely that there will be some marginal realignment of optimum funding/provision solutions depending on the individual circumstances of both employers and employees,” she added

Further information

There is an Advice Centre article that may be of interest: How to make your business cars more tax-efficient.

Plus higher costs on fuel and servicing