The government is to consult on a radical change in the tax treatment of 'expensive cars', red tape and environmental considerations.
The Government has been considering a range of options for modernising the current restrictions on relief for expenditure on business cars which would both address the concerns raised by business and ensure consistency with the government's wider objectives on the public finances and the environment.
A Partial Regulatory Impact Assessment published with the 2006 Budget suggests that modernisation can be best achieved by introducing a new car pool for all cars with a writing down allowance of less then 25%, and a range of first year allowances for cars depending on CO2 emissions. The Government is also willing to revisit the case for abolishing or modifying the lease rental restriction, but only as part of an overall package.
A consultation document has been issued to seek views. It gives three options for reforming the current capital allowance rules for cars:
Abolish the current restrictions and treat all cars in the same way as most other plant and machinery in the general pool.
Introduce a new car pool for all cars with a writing down allowance of less than 25%.
Introduce a new car pool for all cars with a writing down allowance of less than
25 per cent, and a range of first year allowances for cars depending on CO2 emissions.
The third is the government's preferred option.
In addition, the government is willing to revisit the lease rental restriction, but Exchequer constraints mean this could only be achieved as part of an overall package.
All these options attempt to meet the reform objectives by changing the tax regime, as this is the source of the compliance costs. Non-tax measures were not considered, as they would not achieve this reform objective.
The main purpose of the consultation document is to seek views on the government's preferred option. In particular, the government would be grateful for views on and any assistance businesses or others can give in estimating:
The consultation document is available electronically at www.hmtreasury.gov.uk/consultations.
Nichola Ross Martin