Media Clinic: Should the next car I buy be ‘low-emission’?

THE other week, the allmediascotland Media Clinic posed a question for Scotland’s media community to help answer.

One question was posed, two answers were received.

The question was: I’m a freelance photographer who has to constantly travel around the country. My old banger is unlikely to last another winter so I am thinking of replacing it. A friend has suggested that, from a business perspective (I trade as a limited company), I’d be better off with a low-emission vehicle. Does anyone know if this is the case and why I’d be better off?

The answers offered – for information purposes only and should not be regarded as legal advice – are from (1) Diane Holden, a business manager with FW Accounting, accountants who specialise in providing services to freelancers, consultants and contractors; and (2) Hugh Breen, corporate account manager (Scotland) at Carbon Vehicle Management Ltd.

(1) Your friend is right and is probably talking about ‘capital allowances’, whereby if you purchase an asset, such as a car, for use in your business you can claim a capital allowance for that expenditure and offset this against your taxable profits, in the year you make the purchase.

In the case of low emission cars, if you buy a new car that has CO2 emissions of 110 grams or less per kilometre (g/km) driven, or is electric, you qualify for a 100 per cent first year capital allowance (until March 2013). From April 1 2013 the qualifying emission level will drop to 95g/km.

Remember to consider that there will be a ‘benefit in kind’ for you whilst you are driving a company car. If the CO2 emissions are less than 120g/km then this will be ten per cent off the list price for a petrol car and 13 per cent if diesel. And if you purchase an electric car there are no CO2 emissions and so no benefit in kind charge at all, plus electric cars are currently exempt from road tax.

However, there are lots of other things to consider, including what your annual mileage is likely to be, plus whether you intend to purchase the vehicle outright or by Hire Purchase agreement, so please do take the time to run the question past your accountant before making your final decision.

Further information on CO2 emissions can be found here.

(2) Environmental performance of a vehicle varies within each class of car. By electing to go for a low emission vehicle, you could reduce your CO2 emissions and cut fuel bills by up to 25 per cent simply by choosing the most efficient vehicle in each class. More information on low emission vehicles can be found here.

Along with reducing your emissions/carbon footprint, you might also wish to consider the benefits of business contract hire versus purchase.

Contract hire is a type of leasing, the dominant type of leasing in the UK. Here are the main business benefits:

1. Contract hire is a fixed-cost form of motoring. For a set monthly payment, you get the use of a vehicle for an agreed duration and mileage that suits your business. The fee takes into account the vehicle’s price when hired, its forecast mileage during the contract and its estimated residual value at the end. As long as you have not exceeded the mileage and the vehicle is in a fair condition, you just return it at the end of the contract, with no further cost. For an extra monthly fee, you can ask your contract hire company to take care of nearly every hassle associated with car ownership, whether it is maintenance, servicing or replacement vehicles.

2. Most vehicles will lose value from the moment they leave the showroom. In a contract hire deal, you return it to the leasing company at the end of the contract period, and they take the residual value risk. If you include things like maintenance and servicing, you are also protected from any unseen rise in these costs.

3. Leasing/hiring a vehicle instead of purchasing it means you are not tying up capital in a rapidly depreciating asset. You can invest the money that you are not paying upfront in growing your business or reducing debts.

4. VAT is 100 per cent reclaimable on the cost of a vehicle when it is solely used for business, regardless of whether you buy it or contract hire it. However, the situation is different if a vehicle is also used privately. While a contract hire customer can still reclaim 50 per cent of the VAT charged on the finance cost of such a vehicle, a purchaser is unable to reclaim any VAT. Another benefit is the fact that the leasing company that owns the contract hire vehicle can reclaim the VAT on it (because they are solely using it for business) and pass this on in the form of a reduced rental rate.

Our next question for the Media Clinic is: What is the legal status of a verbal contract in Scotland?

If you would like to suggest an answer – in the spirit of camaraderie – please do send it to us, here, for possible publication on September 19.