Error parsing XSLT file: \xslt\FacebookOpenGraph.xslt If your head's hurting, let contract hire take the strain
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If your head's hurting, let contract hire take the strain

Date: 04 April 2007

Rupert Saunders

You can always opt out if you find all the latest Budget complications and calculations too confusing, says Rupert Saunders

What to make of the Budget? It's a tricky one, I'll admit. Of course the core message is that you need to be making your business car fleet leaner and greener. The more difficult question is: how are you going to do that? And how are you going to fund it?

So many medium term issues about business car finance remain unanswered. Despite suggesting last December in the pre-Budget Report that there would be some clarity on mileage rates and ECO schemes, the Chancellor has left that decision for his successor.

Also delayed is the long-awaited decision on capital allowances for business cars - though at least we do have a consultation paper which shows what the Government is thinking. Various organisations, including the BVRLA have been lobbying for the abolition of the concept of an 'expensive car' for some time.

At first reading, the consultation appears to replace 'expensive car' with 'dirty car', suggesting a specific write-down allowance band for cars emitting more than 165g/km. It will take some time to work out the practical effect of this, so I'll come back to it at a later date.

But why does it have to be so complicated? There is a perfectly good basic principle of capital allowances in place for most company assets, which gives a 25% per year write down. On that basis a £15,000 business car would have a written down value of £6330 after three years - which sounds about right to me.

A little light

Some clarity on the Budget was provided by Alison Chapman at Deloitte, who can always be relied upon to see a wider and wiser picture than most of us. It was she who pointed out that an unplanned side effect of the Chancellor's measures against gas guzzling cars might be a collapse in residual values.

"Demand for high emission cars in the second hand market will fall along with their value," she warns. "When multiplied across an entire fleet, tens of thousands of pounds (and more for the larger fleets) could be wiped off the resale values."

“Demand for high emission cars in the second hand market will fall along with their value. When multiplied across an entire fleet, tens of thousands of pounds (and more for the larger fleets) could be wiped off the resale values.”

Alison Chapman, Deloitte

It remains to be seen whether a £15 hike in VED is likely to cause that drastic a change in buying patterns. My own view is that very few people think about the cost of VED during the excitement of buying a car, even if they are on a tight budget. It's only after they have owned it for a year and have the first tax renewal to pay that the grim reality hits home.

Chapman is also suggesting we should all factor tax and national insurance contributions in to our whole-life cost calculations. She has a point. Employers' national insurance contributions are one of the hidden costs of running a business car fleet and, of course, it is the NI saving that underpins most ECO scheme, not the mileage rates.

But adding in tax and national insurance just makes the whole thing even more complicated - and doesn't actually offer any solutions.

Hand it over

Right now, it seems to me there is a very strong argument for turning the whole fleet over to your favourite contract hire company. I'm not in the business of promoting contract hire (and I know there are more tax-efficient ways of funding business cars in certain circumstances) but nobody could disagree with the fundamental advantage that contract hire offers - namely that it takes away uncertainty.

Let's face it: £15 a year spread over 36 monthly rentals is hardly going to register and, if there is a residual value collapse coming, then it will be the leasing company, not you, that takes the hit. They even have accountants who can work out the net effect of capital allowances.

You might be talking yourself out of a job, but I reckon it's worth a phone call to find out what they can offer.



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