Changes to Car Capital Allowances

Newsletter issue - December 08.

The Pre-Budget Report has clarified the future tax relief available on the purchase of cars and motorcycles.

Cars purchased by companies from 1 April 2009 (and by unincorporated business from 6 April 2009) will attract tax relief depending on the vehicle's CO2 emissions:

Up to 110g/km - 100% allowance in year of purchase
Up to 160g/km - 20% deduction per year
Over 160g/km - 10% deduction per year

Under this system it will take longer to achieve full tax relief for the cost of a car, particularly for the higher polluting vehicles. When a post March 09 car is sold the balance of the unclaimed cost remains in the pool of business equipment to be deducted at the normal rate of 10% or 20%. So full tax relief is not given even though the car is no longer owned.

Currently, on the disposal of a car that cost over Â£12,000 the unrelieved purchase cost is claimed as a balancing allowance. Cars that are acquired before 1 April 09 will continue to attract a balancing allowance on sale for a transitional period of five years. After 31 March 2014 all pre-April 09 cars will be added into the relevant pool for business assets. Therefore, if looking at purchasing this type of car, it could be advantageous to purchase before April.

Cars used by partnerships and sole-traders will attract tax relief at the same rates as for company owned cars. However, a balancing allowance will still be available on sale where the car has been used privately by the business owner. So ensuring some private usage may be beneficial.

From April 2009 all motorcycles purchased by businesses will qualify for the Annual Investment Allowance, which will normally give 100% deduction in the year of purchase.