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THE key issue of the emergency Budget, presented by Chancellor George Osborne on June 22, was the rise in VAT to 20%.

Such a rise in VAT was widely anticipated. It will take effect from January 04, 2011.

The change may well accentuate the appeal of leasing company cars, as 50% of the VAT on the contract hire lease can be reclaimed. Businesses that purchase their company cars cannot reclaim the VAT.

Writing down allowance (capital allowances)

There were important changes for those small businesses that continue to purchase their company cars. The writing down allowances for plant and machinery were changed. This will affect purchased company cars.

• 18% writing down allowance – down from 20% for expenditure allocated to the main pool of business assets. Affects those business cars with emissions of 111g/km CO2 to 160g/km and all commercial vehicles

• 8% writing down allowance – down from 10% for expenditure allocated to the special rate pool. Affects those business cars with CO2 emissions above 160g/km.

These changes to writing down allowances take effect for chargeable periods ending on or after April 01 2012 (corporation tax); on or after 06 April 2012 (income tax).

John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA) had this comment about the changes to capital allowances: “The reduced allowances will make leasing even more attractive,” said Mr Lewis.

“Companies purchasing their business cars will have the administrative and financial burden of carrying these depreciating assets on their balance sheets.”

Corporation tax

Small companies’ rate (small profits rate, or SPR) goes down from 21% to 20% from 01 April 2011. In real terms this is a 2% reduction, as the previous government had promised to up the rate to 22%.

“The move to reduce the Small Companies Tax Rate to 20% is welcomed and will help over 850,000 small firms,” said the Federation of Small Businesses.

The main rate of corporation tax reduces from 28% to 27% from 01 April 2011. It then reduces in 1% steps down to 24% by 01 April 2014.

Fuel tax

No change here. Fuel duty will rise 1p per litre in October 2010; 0.76p in January 2011. Thereafter the increase will be 1p a litre above inflation each year to 2014. From 2011, the rise in VAT will exacerbate the fuel duty increase. The AA says that the combined effect will increase the price of a litre of fuel by 4.63p (petrol) and 4.68p (diesel).

Company car tax

Changes announced in the previous Budget will go ahead. For details, download our Company Car Tax – How Budget 2010 Affects You.

Transport infrastructure

The following projects were given the go-head:

  • The upgrade of the Tyne & Wear Metro
  • The extension of the Manchester Metrolink
  • The redevelopment of Birmingham New Street station
  • Improvements to the rail lines to Sheffield and between Liverpool and Leeds.

Steve Agg, chief executive of the Chartered Institute of Logistics & Transport (CILT) commented: “This was a budget where widespread cuts were expected. We are extremely pleased to see that such vital regional projects have survived as they are essential to the continuing success of the UK passenger rail network.”

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