As a business owner or finance professional, finding out about the facts for capital allowances for business cars is a must if you want to make the most of your company’s tax efficiency. In this blog post, we’re diving into the world of capital allowances, with the spotlight on how they play out when it comes to business vehicles. We’ll be looking at key factors like CO2 emissions, purchase dates, and the various rates of allowances available. Think of this as your trusty GPS for making savvy decisions about car purchases and navigating tax planning.
Capital Allowances 101
First things first, let’s establish a clear understanding of capital allowances. They’re a form of tax relief available to businesses in the UK. They allow you to deduct a portion of the value given to qualifying assets from your profits before tax. This deduction can help reduce your tax bill, making it an important consideration for any business.
Capital Allowances on Cars
Now, let’s shift gears and talk about the specifics of capital allowances for business cars. Your four-wheeled friends have their own set of rules. Here’s what you need to know:
1. Writing Down Allowances (WDAs): WDAs are the most common way to claim capital allowances on cars. The rate you can claim depends on the CO2 emissions of the car:
- Main rate allowances (18%): Applicable to environmentally friendly cars emitting 50g/km or less.
- Special rate allowances (6%): Reserved for vehicles with CO2 emissions exceeding 50g/km.
2. First-Year Allowances (FYAs): If you’re eyeing low or zero-emission cars, you’re in for a treat as you can claim a 100% FYA, allowing you to offset the entire cost against your taxable profits in the year of purchase. Welcome news for electric car enthusiasts.
3. Exclusions: It’s important to note that cars don’t qualify for the Annual Investment Allowance (AIA), which offers a 100% write-off in the year for other types of assets.
For Sole Traders and Partnerships
If you’re a sole trader or in a partnership, there’s an alternative route: simplified mileage expenses for business vehicles. It’s like taking the fast lane, but remember, you can’t have this and claim capital allowances for the same vehicle.
For Employees
Employees, we haven’t forgotten you. Unfortunately, you can’t claim capital allowances for cars, motorbikes, or bicycles used for work. However, you may still be eligible for reimbursement of your business mileage and fuel costs.
What Counts as a Car?
For capital allowance purposes, a ‘car’ is a vehicle designed for personal use, not primarily intended for transporting goods. This includes motorhomes but excludes the heavyweights – lorries, vans, trucks, and motorcycles (unless purchased before April 6, 2009).
Claiming Rates for Cars
The rate you can claim depends on your car’s CO2 emissions and the purchase date. Here are the key points for different periods:
- Cars Bought from April 2021 Onwards:
- New and boasting zero emissions (including electric cars) qualify for 100% first-year allowances.
- Second-hand electric cars join the main rate allowances club – good for the environment and your finances.
- If your car’s emissions are ≤ 50g/km, you’re still eligible for main rate allowances.
- If your car’s emissions are > 50g/km, you’ll fall into the special rate allowances category.
- Cars Purchased Between April 2018 and April 2021: Similar rules as before, but with adjusted CO2 limits.
- Purchases Made from April 2015 to April 2018: Again, the same CO2 rules apply, just tweaked for that timeframe.
- Cars Acquired Between April 2013 and April 2015: It’s like a rerun of the previous rules, but now tailored to the CO2 emissions during this period.
- Cars Bought Between April 2009 and April 2013: No surprises here – the CO2 limits stay the same, maintaining consistency for this time period.
- Cars Purchased Before April 2009: If you own a car that was bought before this date, you’ll have to shift its balance into your main rate allowances pool when you’re working out your claim.
Using Cars Outside Your Business
If you use your car for business and personal purposes, you must allocate the capital allowance claim based on your business usage.
Providing Cars to Employees
If your business provides a car to an employee or director, you can claim capital allowances based on the full cost. But, if the employee uses the car for personal reasons, you may need to report it as a company benefit to HMRC.
Maximising Your Business Car Tax Perks
Getting the hang of the capital allowances game for business cars might feel complicated, but it’s worth it to supercharge your tax efficiency. Don’t forget to keep a close eye on those CO2 emissions and the purchase date of your vehicle – they’re the factors that can improve the allowances you can get.
And here’s a tip: When in doubt, speak to a tax professional to guide you. They can give you the personalised advice you need to stay on the right track, ensuring you follow the rules and excel in optimal tax planning.
If you’re ready to make the best use of your tax savings and would like some help, give us a call today on 01603 630882 or complete our online form here.
