Budget 2013 and what it means for leasing
We waited for the budget with bated breath as many warnings were issued before the release. Across the public sector, many who had caught a whiff of the changes had already begun to campaign against the cuts as George Osborne faced the unenviable task of gently trying to improve the country’s deficit.
Even in our sector, the chancellor faced some lobbying from the leasing industry calling for a reversal of the abolition of first year allowances for vehicle lessors on low emitting cars from April the 1st. The budget brought many updates that have an effect on equipment leasing along with any company integrated into the sector.
We expected changes, and we expected some of these changes to be unwelcome, however as John Lewis of the British Vehicle Rental & Leasing Association (BVRLA) said:
“With the economy flirting with recession and household incomes still falling in relation to inflation, the government just cannot afford to price businesses and households off the road”
In the short term the budget seems beneficial for the leasing industry, at least on the surface, for example continued reductions in corporation tax rates.
It was announced that on a descending scale, by 2015 the UK corporation tax rate will fall to 20%, this being an extension of the reduction to 21% by 2014 previously announced. This should have beneficial knock on effects to tax based agreements in leasing where writing down allowances are claimed, however, we urge you to delve a little deeper as this benefit could actually be reversed when other factors are considered such as the abolition of first year allowances on low emitting cars for lessors.
Great news for small businesses
There did seem to be some relief for small businesses, more specifically those with an annual turnover of less than £79,000. From April the 6th it will be easier for these micro businesses to drive growth and expansion through leasing.
It’s called the cash basis for small customers where businesses who are already in an agreement for asset financewill only pay the tax expenses in line with their real payments for leasing or hire purchase on vehicles.
This will make accounting much simpler to source leasing agreements for business vehicles. The added simplicity to the recording of tax has the potential to save these small customers a lot of time and money as it was recognised the paperwork along with the fear of miscalculating tax as previously they were charged by the HMRC as if they owned it.
The FLA’s Campaign
This development hasn’t come along by accident though as the Finance & Leasing Association (FLA) has been campaigning for this change for years, as Julian Rose the head of asset finance at the FLA commented,
“This move is long overdue and one for which we have campaigned. It has never made sense for small businesses to have to treat leased equipment as if they owned it. Our research shows that many firms lost out on tax benefits because they either did not understand the rules, or did not have the taxable profits to offset against capital allowances.
“This change will help tens of thousands of businesses to invest in new equipment through leasing.”
However, this change doesn’t align with the new First Year Allowances rules which will exclude vehicle leasing companies. The Chancellor announced some extensions of 100% first year allowances (FYAs) whereby the cost of low emitting vehicles can be written off in full in the year of acquisition. However, lessors are now precluded from claiming any of these FYAs, although their customers may claim them in the case of hire purchase type or long funding lease contracts.
FYAs on low emission cars, which were due to expire in 2015, have now been extended for at least a further three years up to 2018 at which point they will be further reviewed. The relevant emission limit will, however, be further reduced from April 2015 so that it is only available for cars with CO2 emssions below 75g/ km, compared with 95g/ km currently. Prior to April 2013 FYAs were available on cars emitting 110g/km or less. The same extension will apply to gas refuelling equipment for vehicles.
Until this year low emission cars represented the sole example of a FYA available to car lessors, but its removal with effect from the end of the 2012/13 fiscal year was announced last year. The latest Budget statement brings no change there but John Lewis, was again critical of the disappearance of FYAs for car lessors while they are being extended elsewhere.
“Thousands of businesses, particularly SMEs, rely on leasing to acquire their cars, in many cases because they cannot raise the finance elsewhere. The decision to remove FYAs will not stop them leasing, but it will result in them choosing cheaper cars with higher CO2 emissions. In effect, the government is hindering the momentum towards greener motoring. We think overall car emissions in the UK could rise as a result over the next year. The government’s decision to rethink the benefit-in-kind thresholds on low-emission company cars will make them a more attractive proposition to drivers, but there is no point doing that if companies don’t offer staff these vehicles in the first place.”
Discrimination against the leasing industry
He went on to strongly claim that,
“We believe that this move unfairly discriminates against the leasing industry and could break European Commission rules on low-carbon incentives.”
There were other changes that seemed generous on the surface but really gave no long term benefits such as the cap on fuel increases. The Chancellor agreed to postpone the proposed Fuel Duty increase in September; however this does nothing to solve the rising problem of increases in the underlying fuel costs and other costs of staying on the road.
To quote John Lewis again, as he says,
“This is almost becoming a no-brainer. With the economy flirting with recession and household incomes still falling in relation to inflation, the government just cannot afford to price businesses and households off the road.”