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Tax changes loom for Company Cars in Budget 2008

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Tax consultants Bourne Business Consulting LLP have warned businesses to brace themselves for new changes to company car taxation.

Alastair Kendrick, a partner at Bourne and an expert in company car issues, says that Chancellor Alastair Darling’s March 2008 Budget is likely to include changes to the company car taxation system to encourage environmentally-friendly behaviour.

Businesses can currently write off some expenditure on cars against taxable profits through capital allowance tax relief, which depends on each car’s price, CO2 emissions and use, with special rules for cars costing more than £12,000.

But last year, following consultation, the government published its preferred option for a new company car capital allowance regime, involving:

• 100 per cent relief on cars with a CO2 emission level of 120g/km or less
• Including cars with CO2 emissions of 121-165g/km in the 25% general plant and machinery tax capital allowance pool, which falls to 20% from April 2008
• A lower capital allowance rate for cars with CO2 emissions above165g/km

An announcement is also due on the government’s 2007 consultation on changes to approved mileage allowance payments (AMAPs) - tax-free payments for employees using their own cars for work - to make these less attractive for cars with higher CO2 emissions and higher business mileages.

Alastair Kendrick said: “Businesses operating large car fleets, including the leasing sector, need to be aware that the government clearly plans significant tax changes. These proposals are likely to impact on the cost to employers of providing company cars, leading many to consider whether to carry on or to find alternative ways of doing so."

“The AMAPs proposals seem particularly harsh for employees who have clock up high mileage for work purposes, while any change to AMAPs relating to CO2 emissions would create extra administration for employers and be likely to leave a significant number of employees out of pocket."

“The likelihood of a government announcement underlines the importance of businesses operating large car fleets regularly reviewing their schemes to ensure that they can respond to developments effectively."

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Posted February 14, 2008