Company cars and the new capital allowances

From April 2009 it has been announced that there are new rules regarding tax relief on business cars. This could make a difference to the capital allowances so it may be more practical to change your car sooner than you had anticipated.

This Pre-Budget report details allowances are based on the vehicles carbon dioxide emissions. The ones mainly affected will be those that were acquired after the 31st March 2009 for companies and for sole traders and partnerships this will apply after 5th April 09.

After April it will be only cars with co2 emissions that are up to 160g/km which will attract allowances at just 10%. Therefore buy a car before April and keep the higher rate of relief.

It is thought that the more upmarket cars with emissions up to 160 g/km may be a better proposition to buy now. At the present time if you are contemplating purchasing a car which costs more than £12,000 writing down allowances will be curtailed to £3,000 a year. You are entitled to a balancing allowance when you get rid of it. Long term the entire capital cost of the car is allowed for tax in its lifetime.

These new rules will remove the £3,000 limit plus the allowance. In the case of the expensive car which will normally lose its value much quicker than the rate of capital allowances, this will mean that there could well be a shortfall in allowances as in comparison to the cost of the car in its lifetime.

Under these new rules it appears that businesses that lease cars that are expensive should indeed benefit. The restriction on tax relief on lease rentals for cars exceeding £12,000 will be restored by 15% disallowance of lease rental payments on vehicles with co2 emissions that are above 160g/km. This will be regardless of their cost.