Chancellor of the Exchequer Alistair Darling’s first Budget fuelled the green transport revolution with a string of changes.

But, while the Chancellor painted alterations to Vehicle Excise Duty, capital allowances and company car tax as green, business and company car drivers will see plenty of red unless they make radical changes to their company car choices.

The Chancellor’s major green fleet measures focused on:

• New rules on capital allowances for owners of business cars that are designed to give tax relief for the depreciation in the value of a vehicle
• A comprehensive overhaul of Vehicle Excise Duty rates
• A further tightening of company car benefit-in-kind tax

As a result of the measures, companies now have a 12-month window of opportunity to conduct a wholesale review of their current fleet funding methods and company car choice lists before the new fiscal rules start to bite.

A failure to encourage the increased take-up of low emission vehicles will inevitably see corporate costs and driver benefit-in-kind tax bills rise.

Capital allowances

Changes in capital allowance rules - a system that allows companies to offset the cost of items used for their business against their tax bill - come into effect on April 1, 2009.

The changes, see the complete scrapping of current rules, will hit companies who buy vehicles outright and fleets that lease their company cars.

Currently, capital allowances on company cars work in two ways, with vehicles under £12,000 written down in a general pool, while vehicles of £12,000 and over are treated individually and their annual writing down allowance is capped at £3,000.

When cars costing over £12,000 are leased, a proportion of their rental is also disallowed up to a maximum of 25%.

From April 1, 2009 expenditure on cars with CO₂ emissions above 160g/km will attract a 10% writing down allowance (WDA) and expenditure on cars with CO₂ emissions of 160g/km or below will attract a 20% WDA.

The rules affecting leased cars are being reformed in line with the new capital allowances rules. From April 1, 2009, leased cars emitting more than 160 g/km will have 15% of the relevant payments disallowed.

The Government is considering the option of applying the disallowance only to the final business user in a chain of leases.

In addition to this, the 100% first year allowance for the cleanest cars will be extended from March 31, 2008 to March 31, 2013 and the qualifying CO₂ emissions threshold will be reduced to 110 g/km from 120 g/km.

Vehicle Excise Duty

VED rates from now until March 31, 2009 remain at the levels announced in Budget 2007 and range from £0 (Band A) for cars with CO₂ emissions up to 100 g/km to £400 (Band G) for cars with CO₂ emissions over 226 g/km (see table below). 

From April 1, 2009, VED rates for cars registered on or after March 1, 2001, will be reformed to include six new bands - Bands A-M. Rates will vary from £0 (Band A) for cars with CO₂ emissions up to 100 g/km to £440 (Band M) for cars with CO₂ emissions over 255 g/km.

Then, from April 1, 2010, a new first year VED rate will be introduced. Low emission cars - up to 130 g/km will pay £0 - while the highest emission cars (over 255 g/km) will pay £950. The national media has dubbed the move a ‘showroom tax’. The standard rate of VED in 2010/11 for cars already registered is also shown in the table.

1. 2008/9 rates take effect from March 13, 2008

2. Cars registered before March 23, 2006

3. Cars registered on or after March 23, 2006

4. Alternative fuel car discount 2009-10 £20 bands A-I, £15 bands J-M 2010-11 £10 all cars.

Company car tax

Company car tax thresholds will tighten by a further 5 g/km with effect from April 6, 2010. That will see the 15% company car tax band lowered from 135 g/km to 130 g/km.

Ironically, company car tax bills for basic rate taxpayers will fall in 2008/9 despite a 5 g/km tightening of carbon dioxide emission thresholds.

The Chancellor confirmed an earlier Budget announcement that basic tax rate would drop from 22% to 20% from April 6 this year. However, company car tax levels for higher rate taxpayers will rise in 2008/9 as the 40% tax rate will remain unchanged

The Chancellor also announced:

• The fixed figure on which the company car fuel benefit charge paid by employees who drive company cars and receive ‘free’ fuel for private use is based will rise from £14,400 to £16,900 from April 6, 2008. From April 6, 2009 the figure will be linked to the rate of inflation
• The 2p a litre fuel duty increase that was due to be implemented on April 1, 2008 has been postponed until October 1, 2008.
• Authorised Mileage Allowance Payments (AMAPs) will remain unchanged at 40p per mile for the first 10,000 business miles per year and 25p per mile thereafter
• The setting up of a new fund to develop technology that could underpin a national road pricing scheme.