How will Alistair Darling?s green motoring laws affect you?

Road transport accounts for 28 per cent of our annual CO2 emissions. It’s a massive piece of the puzzle for the UK if we’re going to meet the climate change targets set out in the Kyoto agreement.

 The 2008 Budget talked about the Government’s commitment to creating a low carbon economy, and introduced swathes of regulation to encourage low emission motoring, but what exactly does this mean for SMEs?

“The headline grabbing tax change of the most recent Budget is the so-called ‘showroom’ tax, a first year vehicle excise duty for the most polluting vehicles,” says Chandler. “But there were further measures designed to encourage companies to opt for greener cars in their fleets. From 2009, all but the least polluting vehicles will face higher tax rates.

“In terms of capital allowances, the Government will be introducing a tiered system for writing down allowances (WDA) which will be based on emissions,” continues Chandler.  “Vehicles with CO2 emissions exceeding 160g/km will require 10 per cent WDA, while cars with 160g/km or less will be assigned 20 per cent WDA.  This effectively creates two pools for tax purposes and replaces the current approach of individual tax calculations for expensive cars of £12,000 or more.”

If your company runs cars costing over £12,000, this pooled approach will delay the recovery of capital allowances, particularly on vehicles with higher emissions.  It’s carrot and stick: for SMEs looking to buy fleet or company vehicles in the future, there will be significant tax advantages to buying low emission cars.

But there’s more.

“If a business chooses to lease vehicles rather than provide company cars for its fleet drivers, there are further tax reforms to be mindful of,” says Chandler. “The current disallowance for leased cars costing over £12,000 will soon be replaced by a disallowance based on CO2 emissions as from April 2009.  This means that cars with CO2 emissions of greater than 160g/km will be given a 15 per cent net disallowance relating to finance payments; cars with emissions of 160g/km or below will carry no disallowance.”

The tax burden has shifted to high CO2 emitting vehicles over expensive cars. The upside of this is that businesses can happily plump for expensive cars again, as long as they produce low emissions.

Chandler concludes: “When looking at fleet options for 2009 and ahead, it is important for businesses and fleet managers to consider the new tax rules carefully.  Cars with emissions lower than 160g/km will undoubtedly experience a price drop as taxes ease on green vehicles.  

“However it is unlikely to be enough to persuade companies to continue to purchase company cars as any cars falling outside of the emission levels will be subsequent to price increases, additional tax and a longer recovery of capital allowance.  Contract leasing, on the other hand, may be a smarter option for businesses trying to balance environmentally friendly fleet planning with good economic sense.”

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