Tax Allowances Cars
Acquisition of business cars
Purchase
The expenditure on all business cars is now treated in three ways, depending on the CO2 emissions of each vehicle. Diesel and petrol engine vehicles will be treated the same way.
- Companies purchasing cars with emissions of 95g/km or below are able to write down the full cost of these vehicles against their taxable profits in the first year of ownership
- Companies purchasing cars with emissions between 96g/km and 130g/km must allocate the expenditure to the general plant and machinery pool - where they will be able to write down 18% of the cost of these vehicles against their taxable profits each year, on a reducing balance basis
- Companies purchasing cars with emissions of 131g/km and above must allocate the expenditure to a 'special rate' plant and machinery pool - where they will be able to write down only 8% of the cost of these vehicles against their taxable profits each year, on a reducing balance basis
Leasing
The percentage of leasing and contract hire payments that are allowable against a companies profits have improved considerably since the changes introduced in April 2009.
Quite simply for cars with CO2 emissions of 130g/km or less 100% of the rentals are allowable
For cars with CO2 emissions greater than 130g/km, 85% of the rentals can be deducted from a companies taxable profit.
"From a purely financial standpoint it looks as if leasing could become the dominant method of funding for most cars" Dan Rees, Business Car Consultant, Deloitte & Touche
Tax Allowances - Commercial Vehicles
Purchase
The allowances when purchasing commercial vehicles (CV) are much more straightforward than those for cars.
Irrespective of the price or CO2's of the CV they are placed in the general plant and machinery pool and written down at 18% per annum on a reducing balance basis. In other words in the first year 18% of the price paid for the CV is allowable against profits.
It is worth noting that there is an annual investment allowance (AIA) for the first £250,000 of a companies expenditure on plant and machinery each year. Depending on what plant and machinery has been purchased in the current year this could mean you can write off the full cost of a CV in year one.
Leasing
100% of the leasing/contract hire rentals of a CV are allowable against profits regardless of price or CO2's of the vehicle
Amendments to annual investment allowance - APRIL 2013
On April 1 2013, you're no doubt aware there are some changes regarding the Annual Investment Allowance. This may have a dramatic effect on your bottom line but if you need help to clarify what it means for your business, we're here to make it easier to understand. This is what the Inland Revenue says:
Firstly, the total Annual Investment Allowance will increase from £25,000 to £250,000.
Your capital allowances Leasing
Basically, capital allowances are generally claimed on purchased assets based on the purchase price. For cars, the amount is dependent on CO2 emissions. The amount claimed for cars and commercial vehicles is referred to as the Writing Down Allowance.
The current writing down allowance
Cars with CO2 emissions of 110 g/km and below have an allowance of 100% p.a.
Cars with CO2 emissions of 111 g/km to 160 g/km have an allowance of 18% p.a.
Cars with CO2 emission of above 160 g/km have a 8% allowance p.a.
The writing down allowance for next year
From April 2012, the rates for cars with CO2 emissions above 111 g/km will be reduced by 2%. This means:
a) The Writing Down Allowance for vehicles with CO2 emissions of 111-160 g/km will drop from 20% to 18%.
b) The Writing Down Allowance for vehicles with CO2 emissions of more than 160 g/km will drop from 10% to 8%.
How the annual investment allowance will work
All commercial vehicles are claimed at 20% p.a. on a reducing balance basis except for the tax year 2011/12, when 100% allowance can be claimed on the first £100,000 of expenditure. However, from April 2012 this will be reduced to the first £25,000 of expenditure.
Where a business has a chargeable period that spans the operative date of the decrease, the maximum allowance for that business's transitional chargeable period comprises two parts:
a) the AIA entitlement, based on the previous £100,000 annual cap for the portion of a year falling before the relevant operative date.
b) the AIA entitlement, based on the new £25,000 cap for the portion of a year falling on or after the relevant operative date.
