2019 Car Leasing Tax Changes for Companies
Companies should be ready for this new standard. After nine years of deliberating, the new global leases accounting standard will be introduced on January 1, 2019.
The New Car Leasing Standard
On November 15, the Boards for new car leasing standards conducted a meeting regarding the May 2013 Leases — a joint project of the FASB (Financial Accounting Standards Board) and the IASB (International Accounting Standards Board). They discussed and agreed to several amendments to the proposal. The current decisions of the Board for the Lease Classification Criterion include these points:
· A lease will be classified as a finance lease (for lessees) or sales-type lease (for lessors). This is applicable if the lease term is for the major part of the remaining economic life of the underlying asset.
· There is an exception to the lease classification. Entities that are ‘at or near the end’ of the underlying asset’s economic life will not be considered for the lease term criterion.
· Implementation guidance should be included in the final leases standard. It states that one reasonable approach to determining whether the exception is applicable is to ascertain whether the lease begins in the final 25% of an asset’s economic life; is “at or near the end” of the underlying asset’s economic life.
HMRC (Her Majesty’s Revenue and Customs/HM Revenue and Customs) has announced that the IASB is set to publish the final standard in the next month.
Effectivity of the New Standard
Companies still have time to adjust to these new taxation rules. This new standard will be effective for the next three years. However, depending on the business type, the effectivity date will still differ.
After December 15, 2018 — The final leases standard will be effective for:
· Public business entities
· Not-for-profit entities that issue or are a conduit bond obligor for securities that are traded, listed or quoted on an exchange or an over-the-counter market
· Employee benefit plans that file or furnish statements with or to the SEC
It includes the interim periods within those fiscal years.
After December 15, 2019 — The final leases standard will be effective for other entities. Interim periods within the fiscal years will start after Dec. 15, 2020.
Once the final standard is issued, all entities will be permitted for early application.
Impact of the New Standard for Company Car Leasing
Yes. Your hunch is true about its effects. According to HMRC, once the final standard is approved by the European Parliament, it will have an obvious effect on the UK tax laws.
· Adaptation is the first effect. It is expected that HMRC will have to change some rules in order to adapt to the new standard.
· This new standard will potentially affect fleet account books. The Government has a 2011 legislation that says that pre-empt is needed for the introduction of new lease accounting standards. This means that as early as the spring of 2016, companies should start adapting to the new standard.
· Small businesses are most likely to be the last sector to be affected.
· It will be necessary for leasing companies to provide all the numbers that fleet managers will need for their accounts. These companies should also be aware that company car leasing services that aren’t currently separated out from the main service might be separated out in the near future.
In this new standard, the IASB will want to see all the leased assets on the balance sheets of a company, including operating and vehicle taxes. This aims to give the complete financial position for each company. Regardless of these listed impacts, companies that have acquired vehicle leasing services will surely be confused over the required figures included on the balance sheet.
They might start to question whether they should continue to lease their company vehicles. Is it a smart move to lease or not?
It would probably be advisable to talk to a company car leasing provider about these matters. If you are eyeing up a company car lease right after the new standard is implemented, it would be a smart move to find the right company that can answer your questions and fulfill your requirements.