Brown to hit gas-guzzling company fleets

Gas-guzzling company car fleets are set to face a fresh onslaught from the Chancellor in next week's Budget.

Accountancy firm Ernst & Young said it expects long-awaited changes to the capital allowance treatment of company cars to be announced in the Budget on 22 March. But it feared the move would have a "disproportionate impact on businesses with large car fleets".

Companies that own their car fleets can now claim the lower of 25 per cent or £3,000 capital allowances on the cost of the cars, though super-green vehicles with low CO ₂ emissions are entitled to 100 per cent allowances. Capital allowances enable companies to set certain expenditure against taxable profit.

But Ernst & Young now expects the Chancellor to set up an allowance system based on emission bands similar to current company car personal tax groups.

This would mean that large saloons, such as the new Jaguar S type, which has a 314g/km carbon emission, could face a lower allowance than a Smart car, which emits only 113g/km. The difference could be worth as much as £10,000 a year.

Peter Cooke, a professor at Nottingham University's Centre for Automotive Industries Management, said: "Anything environmental is marginally less unacceptable and [the bands] could be introduced relatively quickly. It is certainly something we could see happening at the top end of the range."

Andrew Cope, the chief executive of Zenith, a car leasing company, said such a move would change people's behaviour. "You are already seeing more sales of hybrids and electric cars," he said. But he described it as a "blunt instrument" aimed in the direction of the 3.5 million company cars in the UK.

Gary Hull, a company car expert at PricewaterhouseCoopers, said: "This will influence companies' decisions because they could get more allowances, and employees are now mindful of their choices because they can see it makes a financial difference to them."

The Society of Motor Manufacturers and Traders said it supported measures to encourage the use of lower-emission cars but complained that the current system of capital allowances, introduced in 2002, had not been properly assessed. "If you don't understand how a tax has changed the market, it is like sticking a finger in the air," a spokesman said.