News
VAT RISE TO INCREASE DEMMAND FOR CONTRACT HIRE
The Government increase in the standard rate of VAT to 20% from 17.5% from January 4 adds around £300 to the price of the average new car, according to the Society of Motor Manufacturers and Traders, at a time when many companies are still experiencing tough trading conditions.
For companies which outright purchase their vehicles the move effectively adds 2.5% to their acquisition costs as the VAT cannot be reclaimed, unless the vehicle is for commercial use only. Allied to a reduction in capital allowances from 20% to 18% in April next year for cars emitting 160g/km of CO2 or less and from 10% to 8% for those emitting more than 160g/km, outright purchase looks increasingly less attractive.
However, the changes are set to increase the attractiveness of contract hire, as fleet operators can reclaim 50% of the VAT on the finance element of their monthly rentals and 100 of any maintenance element. The 100% VAT reclaim is unchanged for commercial vehicles.
At the same time, the British Vehicle and Rental Leasing Association is lobbying Government to increase recoverability of VAT to 70% for lease vehicles as this would give a fairerrepresentation of business use, so the proportion of recoverable VAT may actually increase if the campaign succeeds.
Top industry magazine (Fleet News) reports “We fully expect 2011 to be the year of contract hire, as more businesses wake up to the multiple benefits it offers, not just in VAT recoverability, but in cash flow management and more accurate budgeting”.
“The impact of changes to the tax regimes affecting company cars is likely to reduce the attractiveness of outright purchase which has been on the wane for some time. And, even before the impact of the VAT rises, there has been a record in terms of contract hire orders".
During 2010, contract hire fleet grew substantially on the back of some major contract’s with a variety of different organisations in both private and public sectors.
One of the most significant was with utility, Northumbrian Water, which added 350 contract hire cars and up to 100 salary sacrifice vehicles to date, while a contract with a leading international logistics company added a further 550 cars. In addition, contracts to supply several NHS Trusts in North Yorkshire and Humberside are likely to add a further 400-plus contract hire vehicles.
“2010 has been a record year in terms of contract hire orders, and with the tax changes from the start of 2011 through to April 2012, we fully expect this year to be even better, " .
IF you had the opportunity to set all, or at least most, of your company car costs against the business, you would probably take it, wouldn't you?
If there was the chance to reduce the amount of VAT you pay, that would also be worth considering, too?
If you are baffled by contract hire? Here's a quick run down
Contract hire is an agreement to lease a car over an agreed period of time (expressed in months) and distance (expressed in miles). Usually the period is three (36) or four (48) years. The distance is normally 10,000 miles per annum – although higher mileage drivers will have to allow for more. Typically you will see 36 months/30,000 miles as a way of expressing the lease contract term.
You pay a monthly sum (the lease rate) and then at the end of the contract you hand the car back. And start a new contract hire lease. Half of the VAT may be reclaimed on the lease element; if there is no private mileage then 100% VAT can be reclaimed.
If you would like to discuss your fleet and how a change in acquisition could save you time and money, please contact the Corporate sales team at Plan on 01277 364000
