Tax change sparks business car rush
24 February 2009
A new breed of business car drivers is set to emerge out of the latest capital allowance tax regulation changes.
Companies could begin offering low-CO2 cars as a tax-beating alternative to other employee benefits such as salary or healthcare offerings.
As well as the crucial new 160g/km tipping point, from April there is a new sub-111g/km level where fleets can write down the car's cost against their corporation tax bill. That dramatically slices the cost of running a fleet car, and could bring business cars to a whole new level of employees that have not been offered them in the past
"Below 111g/km could be very interesting," said Toyota fleet boss Richard Balshaw. "It's very tax-efficient for the driver and the fleet manager and I think if people do the sums at 110g/km it's a very efficient way of rewarding people."
Balshaw said he is already talking to one company that is looking at such a scheme: "An iQ could cost £185 a year in benefit-in-kind for a 20% tax payer, it's a very efficient way for a company to offer £10,000-worth of benefit."
Finance expert David Rawlings is also predicting a new group of fleet drivers.
"There will be a new wave," he said. "If you go back to the 70s we got a wave then - there was high tax on income and low tax on benefits. In an uncertain economic climate we've got a low tax on eco-friendly cars."
Rawlings said it will be the staff lower down the ranks that will benefit. "The wave that will come in will be good staff you want to retain that aren't highly paid, and for senior people it will be a second or third car."
The second area of fleet car growth could come from salary-sacrifice schemes which see drivers take a cut in salary in exchange for a low-CO2 lower-taxed company car, which cuts their tax and NI bill. Accountancy giant Deloitte has last week become the first to promote such a system.
But both areas will have to wait until the economy picks up.
"People are thinking more about getting rid of staff than how to retain them, but as soon as the market picks up, salary sacrifice schemes could take off," said Rawlings.