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T13 - 100 per cent first-year allowances for cars with low CO2 emissions
A business can claim 100% first-year allowances on expenditure on a car provided that: ●the car is "unused and not second hand" and is first registered on or after 17 April 2002 ● ●is an electric car ●the expenditure is incurred between 17 April 2002 and 31 March 2008. New cars are "unused and not second hand." A car is unused and not second hand even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser or used as a demonstration car. A car's CO 2 emissions figure is shown on the vehicle registration document (the "V5"). Emissions figures for most makes and models can be obtained from the Vehicle Certification Agency's website. (www.vca.gov.uk)For the purposes of capital allowances, a car is defined is a mechanically propelled vehicle except a vehicle: ●constructed in such a way that it is primarily suited for transporting goods of any sort, or ●of a type which is not commonly used as a private vehicle and is not suitable for use as a private vehicle. Some taxicabs fall within the second bullet point above. Expenditure on a taxicab can also qualify for 100% First Year Allowances if the cab meets the general conditions for low CO 2 emission cars.Motorcycles are not included in this scheme. Please note, however, that the 100% First Year Allowances on cars is restricted to business use only and in most cases this will the between 50% and 75%. Upon disposal of the vehicle, there will also be part withdrawal of relief i.e. proceeds @ applicable rate of tax taking into account business part of usage.
New Car Benefit Charge From April 2003, there is a new system for calculating the value of the benefit (chargeable to an employee) of having a ‘company car’. The charge will be based on the car's carbon dioxide (CO2) emissions and the existing reductions for business mileage and older cars will no longer apply. Changes announced in the 2002 Budget also mean that 100% Capital Allowances can be claimed by employers who provide a Low Emission Car (CO2 emission of 120g/km or less) to an employee. A list of the CO2 emission of cars can be found at: www.vcacarfuledata.org.uk. The 100% FYA works well for those employers who currently provide a ‘company’ car to their spouse/practice employee as part of their duties. For example if you are thinking of changing a car, or looking to provide one for the first time, than there can be significant tax advantages for employers who are higher rate tax payers and employees a basic rate tax payer. Example: Purchase a Peugeot 206 D Look 1.4 3 Dr. with A/C Cost £9,465 (CO 2 emission =113g/km)1st Year: Capital Allowances £9,465 x 100% = £9,465 saving tax @40% of £3,786.00 Car Benefit in kind for employee = £9,465 x 18% at 22% tax = £374.81 per annum The employee suffers £374.81 additional annual tax, which, the employer can reimburse by additional wages. The employer, however, will save £3,786.00 in tax. It is important only to provide the car and not pay for any fuel. If the employer provides fuel, than the scheme will not be attractive as the employee will have to pay additional tax by way of a fuel benefit charge. The above is only an illustration. CO 2 emission rates vary depending upon the type of car.Other matters to consider: ●The provision of a car must be on a commercial basis. ●Benefits in Kind charges apply to employees earning more than £8,500 (including benefits charge). ●Class 1a Employers NI will be payable by the employer negating some of the advantage. ●Balancing Charges will apply on disposal of the car (i.e. write back of some of the allowances claimed depending on sale proceeds). This article was compiled by Anil Kotecha, partner at Mac Kotecha & Company. If you require further information, please contact Anil Kotecha on 020 8346 0391. A mutually convenient meeting to discuss your individual requirements can be arranged if necessary.
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We take great pride in our service, and would be delighted to invite you for a free 1 hour, no obligation meeting at our comfortable offices. Simply call us on 020 8346 0391 to arrange a mutually convenient time. This web-site was last updated on 13/06/2008 Copyright © 2003-2008 Mac Kotecha & Company. All rights Reserved. The information on this site is for general guidance only. It is essential to take professional advice on specific issues about their impact on any individual or entity. No liability can be accepted for any errors or omission or for any person acting or refraining from acting on the information provided on this site. |
