Changes to the Expensive Car Leasing Disallowance from April this year have made contract hire more attractive to small businesses. Brian Rogerson, Business Car Manager motor finance writer, explains how your business might benefit.General economic conditions and cost concerns are the two biggest worries facing business car managers in 2009.
However, new tax rules for company cars are likely to boost the demand for contract hire by small businesses. And play an important part in addressing these concerns.
From April 01 (April 06 for partnerships and sole traders) the Expensive Car Leasing Disallowance, which applies to all cars costing more than L12,000, was replaced by CO2-based tax relief.
All cars with CO2 emissions of 160g/km and below will be entitled to full tax relief. Vehicles above this threshold, however, will attract a disallowance of 15%.
Leasing company GE Fleet Services has calculated that: for a company car costing L20,000, the net after-tax cost of contract hire reduces by typically L300 a year; and for a car costing L25,000 this figure rises to L500 a year for those cars with CO2 emissions of 160g/km or lower.
For small businesses it seems that contract hire has never been more appropriate. Contract hire fixes company car monthly costs; frees up capital; and achieves off balance sheet funding.
Gary Killeen, commercial leader at GE Fleet Services explained: “There is considerable upward pressure on company car running costs at the moment. And small businesses are open to ideas on how to make efficiencies. Building a car choice policy around the new tax rules is perhaps the biggest single move they can make.”
He added: “By restricting car choice to sub-161g/km, small businesses will be able to make considerable savings on every vehicle, every year. It is an excellent opportunity to offset increases in contract hire rates that are inevitably starting to come into effect across the board.”
Most mainstream model ranges provide a selection of models that fall easily into the new tax category. Indeed there are executive cars, MPVs and even 4x4s and sports cars that qualify.
For small businesses that have traditionally bought their company cars by cash, now is time for a rethink.
The current tax-saving movement towards business cars with lower emissions will mean contract hire becomes more attractive. Small businesses can preserve their capital; and their staff benefit from lower CO2-based benefit-in-kind taxation.
Fleet Alliance comment on sale & leaseback
Martin Brown, managing director of Fleet Alliance says: “During Q1 2009 we experienced increased demand from companies that outright-purchase their business cars to discuss contract hire. The new legislation provides a much more simplistic way for small businesses to make the right financial decision. It has to be said also that uncertainty over used-car values, and the fact that in a tough market many companies want to focus on core activity, further add to the appeal of contract hire.”
Fleet Alliance can be contacted on: 0845 601 8407.
Further information
If you would like to read more about the changes to the Expensive Car Leasing Disallowance, then read Business car tax accounting changes
