Emergency Budget 2010: VAT hike could lead to vehicle shortage
According to Lex Autolease, with VAT rising to 20% in January 2011, many firms running company vehicles will be tempted to bring forward orders for thousands of new cars to avoid the added tax burden with the increased P11d price, feeding through to increased class 1A National Insurance charges.
Lex Autolease claims that this may not only create future stock shortages for business and private motorists, but could also cost firms more in vehicle depreciation, early termination charges and increased administration.
Marcus Puddy, head of consultancy services at Lex Autolease, said: 'It's likely that many firms will find the temptation to replace their older vehicles too strong and this will create a huge demand for new vehicles to be delivered by the end of the year. Christmas could come early for the car manufacturers, but it's not clear whether current production levels will be able to cope.
'This means some employees may be left disappointed with delivery delays and firms may still be hit with rising VAT costs. Company cars account for around half of all new vehicles purchased each year, so the prospect of shortages occurring is very strong.'
Lex Autolease reveals that for every new vehicle brought onto a fleet next year firms will be faced with additional VAT-related costs, especially if they currently outright purchase.
Marcus Puddy added: 'For this reason, there will be a heavy temptation to replace vehicles this year, instead of next, but we would advise firms to take a look at the wider, long-term cost calculation before acting.
'If all fleets brought forward their replacement cycle at the same time, we could see leasing companies take a different view of residual values because of the increased number of cars coming off fleet that will outstrip demand both now and at the end of term. Also, manufacturers may not be able to supply the car this year, so it is important that firms seek reassurances over delivery timescales.'For more of the latest industry news, click here.