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EMERGENCY BUDGET 2010: VAT rise could trigger vehicle funding review - ACFO

Date: 22 June 2010

Julie Jenner, ACFO, Chairman

The increase in VAT announced in the Government's emergency Budget is likely to trigger vehicle funding reviews "across the board", and could lead to a "pull forward" of orders late this year to avoid the higher rate, according to fleet operators' association ACFO's chairman Julie Jenner.

"The increase in the rate of VAT from 17.5% to 20% from January 4, 2011 will clearly increase the cost of new cars, fuel and servicing, maintenance and repairs," she said. "As a result, I would anticipate a 'pull forward' of orders to 2010 so that the higher VAT bills associated with the purchase of new cars are avoided.

"While the VAT rise will clearly impact on the cost of motoring for fleets, the Chancellor's decision not to raise fuel duties over and above the increases announced in the March Budget is to be welcomed," Jenner continued. "However, the VAT increase taken together with associated changes in VAT disallowance rates, the reduction in capital allowance rates, the reduction in corporate tax rates, the increases in National Insurance rates and the changes in personal allowances is likely to trigger vehicle funding reviews across the board.

Jenner said ACFO isn't predicting the changes to cause a shift towards any one source of vehicle acquisition, with no clear advantage to shifting towards purchase, leasing, employee car ownership schemes or salary sacrifice evident.

"However, it seems likely that there will be some marginal realignment of optimum funding/provision solutions depending on the individual circumstances of both employers and employees," said Jenner. "Working out the fine details is likely to take some time, as there are so many little effects that could apply in individual personal and employer circumstances.

"As a result, ACFO anticipates that many fleets will conduct strategic reviews of their current fleet operating methods," she finished. "Only then will a clear picture emerge as to whether the Emergency Budget has had anything other than a superficial impact on the make-up of the UK company car market.

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