Car Leasing The New Corporation Tax By:Charlotte Cavanagh

The government has introduced new tax rules to encourage businesses to choose vehicles with lower CO2 emissions.

From 1st April 2009, 160g/km became a key CO2 emissions figure for new cars, replacing the previous ?12,000 'Expensive Car' threshold.

What impact does this have on the cost of leasing a business car?

For new cars registered from 1 April 2009, companies will be able to offset 100% of their leasing payments against their tax bill if the vehicle is below the 160g/km threshold, irrespective of its capital cost. For leased cars emitting more than this threshold, they will only be able to claim 85% of the financial element of the rental.

The new rules will make it more tax efficient than before to lease a new company car that emits 160g/km of CO2 or less.

Jane Ramsey of Vesource Ltd says "The tax changes will also relieve a major administrative burden from accounting departments, who now only have to worry about whether a vehicle has emissions above or below the threshold to work out their writing down allowance or lease rental restriction."

What should you do?

Whether you run one vehicle or a thousand, you should review your business car strategy to ensure that you take full advantage of the new tax regime.

Firstly, you need to review your acquisition method. Currently there is a 'tipping point' of around 20,000 Franks, with most tax advisers recommending companies to buy cars costing more than this figure. Under the new system, leasing is expected to be the most tax efficient acquisition method in nearly all cases.

Secondly, companies need to review their car policy, examining the whole-life cost of vehicles. For example, two 30,000 Franks cars may cost the same to lease or purchase, but, depending on emissions, could have a dramatically different after-tax cost.