Important Information On Tax Changes That Affect Car Finance

Monday, 20. October 2008

I mentioned the tax changes that will take place in April 2009 relating to company cars. However, some people are confused over the affects on leased cars whilst others still have concerns over their capital allowances after the changes have taken place. It would of course be wise to seek the advice of your accountant but in order to shed some light on a confusing situation – I hope this helps. First of all one thing will not change and that is the position with regard to ‘Low CO2 Emission Cars’. Whilst the threshold reduces in 2009 from 120g/km to 110g/km the tax handling remains the same. If you purchase the car you will be able to write off the full cost of the car in year one, ie. 100% year one allowance. Currently cars costing less than £12,000 attract an annual writing down allowance of 25% followed by a balance allowance when the car is sold. The same applies to cars costing more than £12,000 but with a maximum writing down allowance of £3,000 per annum followed by a balance allowance when the car is sold. The sub £12,000 cars are pooled at the moment but cars costing more than £12,000 have to be treated individually for writing down purposes. However, as of April 2009 the system changes. Cars with a lower emission than 160g/km will be pooled and those over £160g/km will also be pooled in a separate pool. The pool of under 160g/km will attract capital allowances of 20% per annum whilst those over 160g/km will attract capital allowances of 10% per annum. The pools increase as new cars are purchased and reduced as cars are sold. There is no balance allowance which means that expensive cars with emissions of over 160g/km will still be attracting capital allowances long after the car has been sold. With regard to leasing, cars with a CO2 emission of less than £160g/km can offset 100% of the rental for tax purposes. Cars with CO2 over 160g/km has a disallowance of 15% of the monthly rental compared to a maximum of 25% at the moment – very strange. Advice from Fleet News is that if cars are due for change on or around the end of March that companies consider ordering sooner rather than later or run the risk of long deliveries resulting in unintentional tax penalties as the new rules come into force. By Graham Hill