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The hidden impact of the Budget

The Budget introduced many unseen changes that could cost businesses dear – unless they reconsider car choice argues Deloitte’s Nigel Morris.
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Morris: hidden Budget costs

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12 April 2007

Nigel Morris: Budget analysis
Morris: hidden Budget costs

The Budget introduced many unseen changes that could cost businesses dear – unless they reconsider car choice argues Deloitte’s Nigel Morris.

MOST people will have noted the changes to Vehicle Excise Duty in this year’s Budget.

But one element requires closer scrutiny.

Businesses with high emission vehicles face losing a significant amount from their resale value.

Consumers buying a car on the secondhand market will be much less willing to pay the higher rate of VED. As such, demand for high emission cars in the second hand market will fall along with their value.

When multiplied across a bigger business fleet, many thousands of pounds could be wiped off the resale values.

Another point worth noting is that employer’s National Insurance – based on the benefit in kind to the employee – increases as the car’s CO2 emissions increase.

The NI cost of high emission cars can be substantial without companies even realising. This will need to change.

To make the position for high emission cars worse, there will be a change to the basis of taxation on the capital cost of company cars to a CO2 emission basis. The government’s preferred option is as follows:

  • Retain the existing 100% first year allowance for cars with CO2 emissions up to 120g/km;
  • Utilise the general plant and machinery capital allowances pool for cars with emissions between 121 and 165g/km; and
  • Introduce a new pool with lower writing down allowances than that of the general plant and machinery pool for cars with emissions above 165g/km.

If (or when) these proposals are introduced, the downside effect on cash flow will force many companies to consider whether they should continue making high emission cars available to their employees.

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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