Contract hire will become much more attractive to small business owners from April 2009.
Following the Budget, the Chancellor has swept away the current Expensive Car Leasing Disallowance – whereby any car over £12,000 had an increasing restriction based on price that reduced the amount of rental which could be set against the profit and loss account.
Instead, Chancellor Alistair Darling has introduced a new disallowance based on vehicle CO2 emissions.
For cars below 160g/km, there is no disallowance; for cars above 165g/km the disallowance is a blanket 15%.
“The change should make contract hire massively more popular with small business owners,” commented Nigel Morris, senior manager – global employer services, Deloitte & Touche LLP.
“Hand in hand with the new CO2 disallowance, there is a change to the Writing Down Allowance for business-purchased cars,” continued Morris. “It will now take infinitely longer for companies to fully write down a vehicle.”
Two examples show how a business could benefit from using contract hire under the new CO2 disallowance rules.
Honda currently has a contract hire offer for the Honda Civic 1.8i-VTEC Type S (156g/km) of £224 per month. The examples show the amount of monthly rental that can be put against the P&L (profit and loss) account:
- Old system: £199 per month against P&L
- New system: £224 per month against P&L
Audi has a contract hire offer on its new Audi A4 2.0 TDI SE (144g/km) of £349 per month. The examples show the amount of monthly rental that can be put against the P&L account:
- Old system: £262 per month against P&L
- New system: £349 per month against P&L
In both cases, further restrictions apply depending on the amount of business mileage versus private mileage.
“Potentially it could make an expensive car with low CO2 highly cost effective to lease; and a cheaper car with higher CO2 more expensive,” said Morris.
Further information
- Read Nigel Morris’ analysis of the budgetary changes to the Expensive Car Leasing Disallowance
- Read Nigel Morris’ analysis of the budgetary changes to Corporation Tax
- Deloitte business car advice can be found at www.cartax.co.uk.
- This advice correct at time of posting – March 2008.
Expensive car disallowance goes from 2009
