Expenditure on cars with CO₂ emissions above 160g/km will attract 10% writing down allowance (WDA) while expenditure on cars with CO₂ emissions of 160g/km or below will attract 20% WDA.

In addition to this, the 100% first year allowance (FYA) for the cleanest cars has been extended to 31 March 2013, and the qualifying CO₂ emissions threshold has been reduced to 110g/km.

This is not all as straight-forward as it seems however, as when you finally sell your car, if you have enjoyed a FYA of 100%, there will be some claw-back of tax benefits received.

Example: Robin buys a new Toyota Yaris 1.4 D-4d for £11,000 which has CO₂ emissions of 109g/km on 7^th April 2009. He uses his car 50% for business use. He is a higher rate tax payer and uses the car for three years before selling it for £3,500.

Year 1 – Robin will get capital allowances on this car of £11,000. He will get tax relief on half of this at his highest rate of 40% = £2,200.

Year 2 – The car has a tax written down value (TWDV) of £0 so no tax relief on the actual cost of the car.

Year 3 – He sells the car for £3,500 when it actually has a TWDV of £0 – therefore he is deemed to have made a £3,500 surplus on it and tax will be clawed back on half of this as he uses his car 50% for business. Therefore additional tax to pay of £700.

Total tax relief over the life of car ownership in the business - £1,500