Modernising Tax Relief for Business Expenditure on Cars
Comments from ACCA
September 2006
ACCA is pleased to comment on the above consultation issued by HM Treasury. We support steps which seek to reduce the compliance burden or simplify the tax system. Hence we welcome the debate which this document opens up. We appreciate that the choices are not easy and each option carries potentially positive and negative consequences.
While we consider that any reform should squarely address the issue of CO2 emissions and ensure that it does not result in incentives being created for greater pollution. We consider that any changes should genuinely simplify the compliance burden in this area rather than replace one set of burdens for another. In this respect we consider the option 3 which is suggested is likely to leave the compliance burden unchanged or increase it by the substitution of new requirements. It is only options 1 and 2 which will result in a compliance burden reduction but we appreciate that both from an exchequer point of view and CO2 emissions point of view they run contrary to the Government's wishes.
In order to help the environment and reduce emissions we may need to be more imaginative. Perhaps we could allow the current pooling regime to continue but include within its scope all hybrid vehicles. Hence even if the hybrid vehicle costs significantly more than £12,000 it can still attract a 25% pooled vehicle allowance. This would help recognise that the use of hybrid technology which significantly reduces CO2 emissions from the petrol or diesel equivalent is rewarded and promoted.
This still leaves the 'expensive' car capital allowance as a burdensome aspect of the tax system. The way forward maybe to have a voluntary flat rate system drawn from experience of the VAT flat rate scheme. We probably need to make a broad assumption here first about the emissions of a vehicle being likely to be higher the higher the price. As we are proposing that we take the hybrid vehicles out in to the general car pool such a correlation may be reasonable. Hence the flat rate allowance could have price based bands in which vehicles could be pooled. The allowance level would be set on a tax neutral basis. The only other refinement we would suggest is that diesel and petrol vehicles should be separately pooled so that diesel vehicles receive a greater level of capital allowance for a given price, first because diesels cars tend to cost more than their petrol equivalent, second they emit less CO2 than their petrol equivalent and third because he are much more fuel efficient.
The Lease Restriction
The restriction should be abolished as the capital allowance is currently permanently reduced by it. The way to offset some of the £100million cost to the exchequer would probably be by operating the new bands at a rate which was revenue neutral.