THE UK’s largest provider of company vehicles, Lex Autolease, has filed this special report on the possible outcome of the VAT hike due in January 2011.AT the beginning of next year, there will be a rise in VAT to 20%.
This could create a scarcity of new cars as many firms running company vehicles are tempted to bring forward orders.
It’s not difficult to see why. They want to avoid the added tax burden with the increased P11d price, which also feeds through to increased class 1a National Insurance charges.
We believe that this may not only create future stock shortages for business motorists, but also cost firms more in vehicle depreciation, early termination charges and increased administration.
“It’s likely that many firms will find the temptation to replace their older vehicles too strong and this will create a huge demand for new vehicles to be delivered by the end of the year,” explains Marcus Puddy, head of consultancy services at Lex Autolease
“Christmas could come early for the car manufacturers, but it’s not clear whether current production levels will be able to cope.”
“This means some employees may be left disappointed with delivery delays and firms may still be hit with rising VAT costs. Company cars account for around half of all new vehicles purchased each year, so the prospect of shortages occurring is very strong.”
For every new vehicle brought onto a fleet next year, firms will be faced with additional VAT-related costs, especially if they currently outright purchase.
“For this reason, there will be a heavy temptation to replace vehicles this year, instead of next, but we would advise firms to take a look at the wider, long-term cost calculation before acting,” advises Mr Puddy.
“If all fleets brought forward their replacement cycle at the same time, we could see leasing companies take a different view of residual values because of the increased number of cars coming off fleet that will outstrip demand both now and at the end of the contract hire term.
“Also, manufacturers may not be able to supply the car this year, so it is important that firms seek reassurances over delivery timescales,” Mr Puddy adds.
