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Car fleets - value for moeny?

Other forces than just HMRC are at work to cause FDs and fleet managers company car pain in the coming months, reports Pádraig Floyd.

Company cars are a thorny subject with rules that always leave some people dissatisfied. The rules on car benefits tax are bad enough, but there are new rules that could cause financial directors (FDs) sleepless nights. The new international accounting standard, IFRS 16, governs how companies treat the accounting of leases, including vehicle fleets.

Shifting the goalposts

Issued in 2016, IFRS 16 comes into force on 1 January 2019 and will touch at least half the world’s listed companies with far-reaching effects. IFRS 16 eliminates nearly all off-balance-sheet accounting for leaseholders, estimated to be $3trn. More importantly, it redefines many common financial metrics, such as gearing ratio and EBITDA. Though done in the name of transparency, it may change the market view of an organisation as it affects covenants and credit ratings, and consequently borrowing costs. Businesses will have to comply, but FDs will be asking if there is anything to be done about their leasing arrangements.

This is an extract from the Business & Management Magazine, Issue 262, March 2018.

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