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TAX: Making allowances for the new emissions-based regime

Date: 24 February 2009

From 1 April the biggest shake-up of business car taxation since 2002's new BIK rules will have a huge impact on fleet running costs. Paul Barker reports

The much-heralded changes to the capital allowance tax system for companies kick in from April Fool's Day. From that day, the CO2 figure of 160g/km will be as important to a fleet manager, procurement boss or head of finance as 120g/km is to the driver looking to minimise their benefit-in-kind contribution.

For a car quoted with CO2 emissions figure of over 160g/km the fleet can claim back just 10% of the vehicle's value against their corporation tax bill annually, while anything at 160 or below and the fleet will be able to offset 20% annually.

"It won't be tax-efficient for fleets to run vehicles above 160g/km, and as a result people will either take these cars off lists or offer a cash alternative," says Toyota's fleet and remarketing boss Richard Balshaw. "[Emissions-based] tax was previously centred around the driver, but the new rules now take it into the domain of the fleet manager and finance director too."

While the changes will apply to every new car acquired from April 1, the biggest problems with the new regime may not come with those vehicles that make up the bulk of fleets.

"There are a lot of diesel-only policies out there and that's mitigated the CO2 level - the problem is at executive level," says Paul Coley, associate director at Lex Momentum, the consultancy division of the UK's biggest lease firm. "A lot of job-need fleets are already set up, but the problem is when you start talking about directors with expensive big-engined cars."

Coley did point out that models such as the BMW 5-series and Audi A6 have versions that get below 160g/km, but advises that fleet managers should ensure the RVs are very strong on any cars over 160g/km.

There's a second, important figure that could have the unexpected twist of boosting the number of people offered a company car...