Accountants everywhere must be feeling grateful to George Osborne for delivering a good old fashioned swings and roundabouts Budget on Tuesday.
Large amounts of electricity will be flowing through number-crunchers’ computers as they work out the trade-offs implicit in new tax rates and allowances.
Meanwhile, fleet operators will watching the outcome of more generous Corporation Tax rates vs. less generous writing-down allowances on kit such as company cars.
At first glance, that particular equation looks to be broadly self-cancelling, which should reinforce the attraction of leasing compared with outright purchase for most businesses.
Businesses can also use leasing to diminish the impact of next January’s VAT hike. Although VAT on finance rentals will go up slightly (not forgetting that half of that VAT is recoverable anyway), the big VAT saving comes on the purchase of the vehicle.
Leasing firms can recover purchase VAT on company cars, whereas fleet operators can’t. The lower acquisition price is reflected in the overall rental. For firms that can recover VAT, the saving from leasing rather than buying outright becomes bigger when VAT rates go up.
ACFO thinks that fleets will bring forward outright purchases to beat the VAT deadline – cue more numerical delight for fellow- accountants as they work out the discounted cash flow implications of tying up capital in cars sooner rather than later! Although I’m not convinced there is much scope for stepping outside of the normal change cycle for most fleets.
The VAT increase will also widen the cost gap between commercially-leased cars and privately-bought ones, since private buyers have to pay all the VAT on car purchases or PCP deals.
Over the next three years, as taxes rise, benefits fall and pay rises falter, this cost advantage looks set to make company cars an even more highly-prized perk. At the same time, I think we will see many non-car-eligible employees going down the Salary Sacrifice route to take advantage of commercial-style leasing rates and rock-bottom personal tax on low-carbon cars.
As my fellow BC Blogger Damian James pointed out last week, firms contemplating Salary Sacrifice do need to do their homework first. However, judging by the response to our recent Salary Sacrifice seminars in London and Stoke-on-Trent, there are plenty of employers who want to know more about these schemes.
Even in tough times, there are still good ways for fleets to make the tax numbers work for them.
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