The balance in fleet car purchasing is beginning to favour low emissions vehicles as new legislation and tax breaks begin to bite. 2009 should be a watershed year.
There are four areas where companies in 2009 can immediately benefit from low carbon emissions fleets. They are: vehicle excise duty; capital allowances; benefit in kind; and private mileage. There are further benefits to employers in travel plans but this leads to a subject beyond the scope of this article.
Vehicle Excise Duty
The vehicle excise duty now provides a clear incentive for low emission cars. The cleanest cars are tax exempt and also get exemptions in congestion zones, while from 2010, there are extra penalties for high polluting vehicles.
The highest rates of duty will be £1000 per year making a potential difference of £1000 per year per vehicle.
Capital Allowances
Capital allowances are now favouring low emission cars. From April 2009 the expenditure on cars with CO2 emissions above 160g/km will attract writedown allowances of 10% while those cars below 160g/km will attract writedown allowances of 20%. This is intended to encourage large fleet owners to switch to low carbon cars. In the case of leased cars, cars emitting over 160g/km will have 15% of their lease payments disallowed while cars below 160g/km will have the full allowance. This threshold of 160g/km is likely to reduce to 110g/km over time as the UK falls into line with European Directives.
Benefit in kind tax
Benefit-in-kind tax for company cars is now based on the level of the car's CO2 emissions. Drivers will pay a higher rate on higher polluting cars which is based on a percentage value of the car and the car's emissions. Further, a new tax band has been introduced for vehicles producing 120g/km CO2 (with a 3% supplement for diesels). This may be reduced to 110g/km in future budgets. The improvements in emissions technology mean that larger cars (including hybrids) can now be within low emission levels. As benefit in kind taxes affect the employer and the employee, a low carbon emissions' strategy benefits both parties. For example, the employee will pay less NIC contributions if he opts for a low emissions car.
Private Mileage
In the 2008/2009 tax year, company car drivers who are given free fuel for private mileage will pay tax on a value of £16,900. They will pay a percentage of that amount in tax at rates of 20% or 40%. The percentage will be calculated according to the CO2 emissions of the car.
Most of these tax changes are new and they reflect a growing trend that is looking through fiscal policy to get company fleet owners and their lessees to switch to low carbon emissions cars. In the current economic environment, this may not be enough to force a quick change of pace but the balance is tipping.
Tables are available to calculate taxes against the emissions of cars. Websites like www.wvl.co.uk , a vehicle leasing company provide this kind of information.
