Chancellor gives green light to contract hire

Contract hire will become much more attractive to small business owners from April 2009.

Following the Budget, the Chancellor has swept away the current Expensive Car Leasing Disallowance – whereby any car over £12,000 had an increasing restriction based on price that reduced the amount of rental which could be set against the profit and loss account.

Instead, Chancellor Alistair Darling has introduced a new disallowance based on vehicle CO2 emissions.

For cars below 160g/km, there is no disallowance; for cars above 165g/km the disallowance is a blanket 15%.

“The change should make contract hire massively more popular with small business owners,” commented Nigel Morris, senior manager – global employer services, Deloitte & Touche LLP.

“Hand in hand with the new CO2 disallowance, there is a change to the Writing Down Allowance for business-purchased cars,” continued Morris. “It will now take infinitely longer for companies to fully write down a vehicle.”

Two examples show how a business could benefit from using contract hire under the new CO2 disallowance rules.