« back to news

Fleet Operators Guide to the Budget

Fleet Operators Guide to the Budget

Following the emergency budget, fleets will face significantly higher costs.

In George Osborne's first budget, there was a variety of measures that will have a direct impact on fleet running costs. There are two significant changes to the tax system which will have the greatest impact – the change to VAT and the change to capital allowances.

The VAT change will add an additional £315 to the cost of replacing a £15,000 vehicle.

The rise from 17.5% to 20% VAT comes into force in January 2011 and will impact on fleets – both on leased vehicles and those which are bought outright. Companies that lease their vehicles can only recover 50% of the VAT on the finance element of the contract – so for example, if maintenance is included you cannot claw back anything for that. The BVRLA is currently petitioning HMRC to raise this to 70% but as this will need EU approval, the road to this being achieved is lengthy.

Fleets that buy their vehicles outright must not only find the extra 2.5% in VAT, they will also find themselves unable to recover the cost if the vehicles are used for private use as well as on company business. This could have a massive impact on fleet operators.

Changes to the capital allowance tax system sees the rate that companies can claim back for the expense of buying a company vehicle reduced. This means that if you are claiming back business expenses it will take you longer – a possible negative impact on cash flow.

The real sting in the tail is the reduction of the rate down to 8% which is likely to be applied to cars that emit more than 60g/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.

Also adding to fleet costs is an increase in the insurance premium tax which rises by 1%. This means that fleet insurance premiums will attract a 6% tax – fuelling the belief that this will lead to a greater number of uninsured drivers on the road. Good advice here is to speak with a professional insurance company – one who can guide you through the insurance maze and make certain your fleet is covered at the most cost-effective premium.

Companies struggling with rising bills to refuel their vehicles were given both good and bad news by the Chancellor when he announced that on the one hand fuel duty would not rise – but on the other VAT would go up by 2.5%! Fleets are still facing the previously announced rises in fuel duty which will see the Government increase duty by 1p in October and a further 0.76p plus the extra VAT in January. These increases will add an extra 4.6p to fuel prices in addition to any price increases introduced by the oil companies and fuel retailers. We still have to deal with the BP crisis too.

Most fleets will be able to recover the VAT element of their fuel costs and the chancellor opted not to introduce a fuel stabiliser, although he did say he will look at ways to bring stability to pump prices. With Asda leading the war at the pumps at the moment, there is much work to be done in this area.

Other indirect tax changes could also add to fleet costs – with so many vehicle leasing companies being owned by banks and other financial institutions it will be interesting to see if the new £2 billion annual bank levy has any impact on the fleet sector.

So what can be done to minimise the hike in costs? Shop around for your fuel, bear in mind the VAT rise in January and plan accordingly – but do not cut corners on your insurance, the risks are too great. So take professional advice and speak with someone who knows the fleet insurance market. Remember – quality without compromise to quality is the key here. If you need to cut corners, do not do so with insurance: consider other means. Perhaps invest time in journey planning or ask your staff for ideas on how to reduce costs on their vehicles, with a prize for the best suggestion. (Buy the prize before the VAT increase come into force!)

Posted on 17th June, 2010