I have analysed last week’s Emergency Budget for implications on fleet costs. There are two main areas – changes to Capital Allowances and the rise in VAT from January 2011 to 20%.
These are the six issues that you need to take notice of now:
- Leasing costs are likely to rise due to changes in Capital Allowances.
- Recovering expenses of buying company vehicles will take longer (Capital Allowances again).
- Leasing costs will rise as you can recover only 50% of the VAT (VAT rising by 2.5%).
- Purchasing vehicles outright will be more expensive – you cannot claim any VAT back if your drivers use them privately.
- VAT increase will affect all fleets cash flow in terms of fuel costs.
- Insurance premium tax increase will add to costs for every fleet.

Will your fleet costs rise next year?
Changes to Capital Allowances see the rates that companies can claim back for the expense of buying a company vehicle reduced. The rate has been reduced to 8% - this will be applied to cars emitting more than 160g/km of CO2.
The cost of company cars that emit less than this benchmark can now be reclaimed at a rate of 18% down from 20% before the budget.
From January 2011 leasing a car should be more attractive from a VAT perspective. Currently the difference between buying and leasing is a VAT cost of 8.75% (zero recovery on buying against 8.75% recovery on a lease). However the VAT cost of buying against leasing will be 10%.
Lastly, insurance premium tax has been increased by 1%, to 6%, so this will also add to fleet costs.
On the plus side the Chancellor gave companies a much-needed reduction in Corporation Tax, which will go some way (for businesses that pay Corporation Tax) to off-setting the other fleet cost increases.
Although the Chancellor did not raise Fuel Duty this time, we are already facing increases announced previously – 1p in October and another 0.76p in January next year – plus the increase in VAT of 25%. This all adds up to and extra 4.6p per litre to fuel prices from January. Most companies, of course, can recover the VAT increase, but it still has cash-flow implications.
Call me if you would like to review your fleet funding strategies before the VAT rise in January next year. I will go through all the figures, presenting alternatives to you and suggest ways to save money and reduce your fleet costs.
Save money by calling UK Fleet Manager on 01527 910999 today.
Mark James
Mark.james@ukfleetmanager.co.uk