Greener is better under the latest company car tax rules, a Midlands tax consultant has warned.
The new regime kicks in this month and Angela Cornell, of the Midlands office of Horwath Clark Whitehill, fears many firms will be caught out.
It follows Government moves in last year’s Budget and pre-Budget report.
“The overall effect is that tax relief on the purchase of cars will become more closely aligned to the CO2 emissions of the vehicle,” said Ms Cornell. “The aim is to reduce the impact of business travel on the environment.”
The new capital allowances system introduces a three tiered structure – vehicles with up to 110g/km CO2, 111-160g/km and 161g/km or more.
“Treasury officials have confirmed that the new tax regime will only apply to cars acquired from April 1, 2009, not to those already owned or leased,” said Ms Cornell.
“It will mean an extra financial hit for any company whose fleet policy is not already aligned to CO2 emissions.
“The rules are complicated but the Government is determined that the environment must come first.
“So, cars with CO2 emissions of up to 160g/km will be eligible for annual writing down allowances of 20 per cent of the cost but those above that will only get ten per cent.
“Other than for sole traders or partners who have private use of cars there will be no separate pool for vehicles costing over £12,000, and therefore no balancing adjustment on disposal.
“For leased cars with emissions over 160g/km there will be a permanent disallowance of 15 per cent of lease rental payments, but no such disallowance below that figure. And that applies no matter what was the original retail price.”
But Ms Cornell notes there is some good news. “There are now a number of smaller cars which have emissions below 110g/km which qualify for a 100 per cent first year allowance.
“The current tough economic climate means dealers are prepared to offer bigger discounts.”