First-Year Allowances For Cars
It is possible for a business to set the
full cost of a car against profits in the year of the purchase if the car is a
low emissions car that qualifies for the first-year allowance. A 100% first-year allowance is
available in respect of cars that meet the definition of a `low emission car’
for capital allowances purposes.
To qualify, the expenditure must be
incurred before 31 March 2021 – the deadline was recently extended by three
years.
To be a qualifying low emission car, the
car must satisfy certain conditions. A low emission car is one that is either
electrically propelled or one in respect of which the CO2 emissions are below
the level specified in the legislation. This is set at 75g/km where the
expenditure is incurred on or after 1 April 2015 and before 1 April 2018. The
threshold is reduced to 50g/km for expenditure incurred on or after 1 April
2018 and before 1 April 2021.
Further, first-year allowances are only
available for expenditure on new and unused low-emission cars. Expenditure on
second-hand cars does not qualify for the first-year allowances, although
writing down allowances are available. Likewise, new cars with emissions above
the threshold are not eligible for the first-year allowance, although
writing down allowances (at 18% or 9% depending on the emissions level) can be
claimed.
Private
use
Where the car is used for both business and
private use, the first-year
allowance must be reduced proportionately to reflect the private use.
Example
Jed is a sole trader. He buys a new low
emission car with emissions of 60g/km, which costs him £16,000. He uses the car
80% for business and 20% for private. He claims a 100% first-year allowance.
The allowance is proportionately reduced to reflect the private use. The
allowance available to set against profits is therefore £12,800 (80% of
£16,000).
Not
mandatory
It is not mandatory to claim a first year
allowance for a car which qualifies. It may be beneficial not to claim where
claiming the full allowance would otherwise create a loss or waste personal
allowances. It is also possible to tailor the claim to suit the taxpayer’s
circumstances. Writing down allowances can be claimed for any expenditure not
relieved by means of a first-year
allowance.
Electric
charge points
As announced in the 2016 Autumn Statement,
expenditure incurred on or after 23 November 2016 and on or before 31 March
2019 (corporation tax) or 5 April 2019 (income tax) on electric charge points
will also qualify for a 100% first-year
allowance.
For more information on the above please contact a member of our team.
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