Vehicle write-down rule changes 'will affect corporation tax levels'

The government is currently considering altering vehicle corporation tax rules to encourage more environmental practices from businesses in the UK, an industry expert has said.

Writing on the realfd.net site, Daimler Fleet's sales and marketing director, Paul Harrop, explained that HM Revenue & Customs (HMRC) is likely to push the new tax system through in April 2009.

He said that the legislation would move the current vehicle corporation tax rules towards a more CO2-based system.

The rules will impact what write-downs and balance allowances a company's accountants can claim against annual profit and therefore affect the total amount of corporation tax to be paid.

Under the plans, businesses will only be able to claim back 20 per cent of a vehicle's opening value if its emissions are less than 160g/km. For more polluting vehicles, accountants will only be able to ask for ten per cent.

Examining this change and others, Mr Harrop concluded: "The cost of running an average vehicle will increase but, and here's the key point, while the ownership cost will spread across an extended period, leasing the vehicle will now allow a user to optimise the corporation tax relief by realising the depreciation element of the rental earlier than before.

"Businesses should not only review the funding of their vehicles, it is also vital to consider the CO2 output, and the revised timeframe when considering vehicle selection."