JANUARY 2009

Summary of 2009 changes to capital allowances for cars

There will be a number of significant changes to capital allowances for cars with effect from 1 April 2009 for companies (6 April 2009 for the self-employed). Cars acquired after this date will be treated differently according to their certified CO2 emissions:

 Low emission cars (< 110 gm/km) will benefit from 100% allowance in year of acquisition

 Medium emission cars (between 110 and 160 gm/km): expenditure goes into the general capital allowances pool with a writing down allowance (WDA) of 20%

 High emission cars (> 160 gm/km): expenditure goes into the special rate pool with a WDA of 10%

Although there is currently a 100% allowance for the cleanest cars, other cars are taxed according to their value rather than their emissions, with so-called "expensive" cars (list price over £12,000 each being allocated to their own individual pool, and having their WDA restricted to a maximum of £3,000 pa. Cheaper cars go in the general pool with a WDA of 20%. No cars qualify for the new Annual Investment Allowance.

In a similar move, payments for leased cars will only be 100% tax deductible if the car's emissions are below 160 gm/km. Otherwise, 15% of the payments will be disallowed.

Loss of balancing allowance

Most businesses that own cars replace them every three or four years. Under the current rules, although the WDA is restricted to £3,000 pa for expensive cars, when the car is disposed of there is usually a balancing allowance which ensures that all of the net cost (purchase price minus sale proceeds) benefits from tax relief.

Under the proposed rules, cars other than those under 100 gm/km will either be in the 20% pool or the 10% pool. In both cases there will be no balancing allowance on disposal. The time delay in obtaining full tax relief may be significant.