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Capital allowances to be based on emissions of CO2

With effect from April 2009 the capital allowance treatment of all cars was reformed to favour those with low CO2 emissions. Since 17 April 2002 certain very low CO2 emission cars, including electrically propelled cars, qualify for a 100 per cent first year allowance.

In April 2013, the carbon dioxide emissions threshold for the main rate of capital allowances for business cars was reduced from 160g per km to 130g per km while the government also extended the 100 per cent first year allowance ultra low-emissions cars for a further two years to 31 March 2015. However, the threshold as to what qualifies as ultra-low emission was also reduced, from 110g per km to 95g per km. Sadly, leased business cars were excluded from this first year allowance.

First-year allowances

Plant and machinery 'first-year allowances' enable you to make a claim for up to 100 per cent of the cost of certain qualifying items against your business profits in the year of purchase.

  • First-year allowances of 100 per cent are currently available for expenditure on:
  • certain energy-saving and water efficient equipment - but only if the item appears on a specific list of qualifying equipment (these are known as 'enhanced capital allowances')
  • new cars with very low carbon dioxide emissions
  • certain vehicle gas refuelling equipment

All of the above allowances are available if you pay Income Tax as self-employed, a partnership or sole trader, or if you pay Corporation Tax as a company or organisation.

Certain zero emission goods vehicles will qualify for first-year allowances from April 2010.

Current capital allowances on cars bought on or after 1/6 April 2009

The capital allowances you can claim on your cars are based on CO2 emissions, which are shown on the car’s V5 certificate.

Check your car’s CO2 emissions on the Vehicle Certification Agency (VCA) website.

If your car does not have an emissions figure because it was first registered before 1 March 2001 then the expenditure is allocated to the main pool, or a single asset pool if there is non-business use.

The table below only applies to cars with 100 per cent business use.

Capital allowances treatment according to emissions levels:

CO2 emissionsCapital allowances treatment of expenditure
Over 130 grams per kilometre (g/km)Goes into the special rate pool and qualifies for writing-down allowances at the rate for the special rate pool, currently 8 per cent per annum.
130g/km or less but more than 95g/kmGoes into the main pool and qualifies for writing-down allowances at the rate for the main pool, currently 18 per cent.
95g/km or less (but note that the first-year allowance for cars in this category is due to expire in 2015)You can claim up to 100 per cent allowance in the accounting period when they were bought, the balance (which may be nil) goes into the main pool in the next year.

Example: If you are self-employed, you pay Income Tax and your accounts are drawn up for the year to 5 April 2010 and you spent £20,000 on a car that you use 100 per cent for your business that has CO2 emissions of 165g/km, the calculation is as follows:

Cost of car = £20,000
Writing-down allowance deducted (£20,000 x 8 per cent) = £1,600
Value to carry forward = £18,400
Capital allowance you can claim = £1,600

Note that there are special rules for cars that are not used wholly for business purposes – eg for private use. To check the details see the later section ‘If you or an employee use the car partly for non-business use’.

Capital allowances for cars bought before 1/6 April 2009

Capital allowances treatment according to vehicle cost

Original costCapital allowances treatment of expenditure
Up to £12,000 with 100 per cent business useThe cost or value was added to the main pool and qualified for writing-down allowances at the rate for the main pool.
Up to £12,000 with non-business useThe cost or value was added to a single asset pool (one for each mixed-use car) and qualified for writing-down allowances at the rate for the main pool and the allowance was then restricted to reflect non-business use.
More than £12,000The cost or value was added to a single asset pool (one for each car) and qualified for writing-down allowances at the rate for the main pool. The allowance was then restricted to a maximum of £3,000 per year and was further restricted to reflect any non-business use.

The above rules in relation to expenditure on expensive cars in single asset pools continue for a transitional period of five years ending on the last day of the first accounting period to end on or after 5 April 2014. After this date, the balance is moved into the main pool unless the car was used for non-business purposes.

Example: If you are self-employed, pay Income Tax, your accounts are drawn up for a full year to 5 April 2012 and you spent £25,000 before 6 April 2009 on a car that is used wholly for business purposes, then the calculation is as follows:

Cost of car in 2008-09 = £25,000
Balance brought forward from 11/12 = £ 12,800
WDA (£12,800 x 18% ) = £2,304 less than £3,000 so no restriction required. WDA you can claim in the year = £2,304
Balance after allowance £10,496

If you or an employee use the car partly for non-business use

There are special rules for items that are not used wholly for business purposes – e.g., for private use. These rules – summarised below – apply to expenditure on cars incurred both before and after 1/6 April 2009.

If you are a self-employed individual or partner in a partnership, pay Income Tax and use one or more cars yourself partly for non-business purposes, you will have to work out the capital allowances for each car separately. You do so by adding the expenditure for each car to a single asset pool and calculating the maximum allowance available for that expenditure. You must then reduce your claim by the amount of your non-business use so that only the business use proportion is taken into account.

If your business provides cars to employees and they use them for private purposes, the cars are treated as being for 100 per cent business use. However, the expenses and benefits tax rules for cars provided to employees will apply.

Last updated: April 2014

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Faye Sunderland

Filed under: Company Car Tax

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