The Finance Bill will include changes to the leasing allowances which will apply to expenditure on cars from 1 April 2009 (from 6 April 2009 for non corporate businesses). It will also introduce corresponding changes to the car capital allowance rules.

Baker Tilly analysis

The tax deduction for such expenditure on leases commenced from 1 April 2009 (from 6 April 2009 for non corporate businesses) will be restricted for vehicles with an emission rating of more than 160g/km. The restriction is to be 15% of the lease costs charged in the accounts.

In detail

The lease restriction under the ‘old’ rules could apply to all links in a chain of leases. Under the new regime it is intended that it should apply to only one lease in any chain. It is intended therefore that the restriction will not apply:

• to a lessee where the car is made available for no more than 45 consecutive days (including linked periods); or
• to a lessor where the car is made available to the lessee for more than 45 consecutive days (including linked periods).

As under the ‘old’ rules the lease costs include non recoverable 50% input VAT on the lease costs where there is private use of the car but exclude specific expenditure for maintenance of the leased car.

The leasing restrictions do not apply to motorcycles under the rules operative from April 2009.