Capital Allowances and Cars

Whilst most of us were pre-occupied thinking about turkey and Christmas presents in December, H M Revenue & Customs (HMRC) were busy releasing a technical note on the sticky subject of capital allowances on cars used in business.  This eighty page consultation document contains an outline for the new proposals which come into effect from 1 April 2009 (for companies) and 6 April 2009 (for sole traders and partnerships), and is in addition to the existing changes which came into force last year regarding capital allowances in general. 

Under the existing arrangement, the basic allowances are claimed at a rate of 25%, however this is also dependant on (amongst other things) whether the car in question cost more than £12,000.  If you lease a car you can't claim allowances as you don't own it, but your allowable leasing payments are reduced if the price of the car exceeds the £12,000 mark. This limit was set a while ago, when cars costing more than £12,000 would have been expensive and fairly uncommon - statistics suggest that well over half of the business cars on the road now fall into this bracket.  The new rules do away with this rather antiquated regime, and will instead use carbon dioxide (CO2) emissions to establish the allowances available - the same CO2 figures used to calculate the PAYE benefits in kind when a car and/or fuel is provided to an employee or director for private use. 

Claims will be made as follows:

• A 100% allowance for cars with a CO2 figure of no more than 110g/km, until at least 2013.
• A 20% allowance for cars with a CO2 figure between 111g/km and 160g/km
• A 10% allowance for cars with a CO2 figure above 160g/km
• A 20% allowance for cars registered before 1 March 2001 with no CO2 figure
• A 10% allowance for cars registered after 1 March 2001 with no CO2 figure

If the car is leased, a standard restriction equal to 15% of the annual leasing costs will be made if the car has a CO2 figure in excess of 160g/km.

The old rules will continue to apply to existing cars owned or leased prior to the above dates, however there will be a five year transitional period after which any remaining cars still owned or leased will be moved into the new system.  It is also worth bearing in mind that at the end of the road when the car is sold, the new rules may mean that you could lose out on previously available "balancing" allowances. 

 The consultation document is just that, with any queries and comments to be submitted no later than 27 February 2009.  At the time of going to press it is not known whether any major changes to the draft rules will be announced, however it is clear that careful thought should be given if you are:

• Using cars in your business
• Considering changing just one or an entire fleet of cars      
• Unsure whether to buy now or wait until after the new rules commence
• Thinking of leasing rather than buying
• Considering incorporation

If you would like to discuss your requirements and how we can help you to get the best result, please contact Ian Haynes on ihaynes@springfords.com.