Confused by Tax Rules?
Tuesday 19 January 2010 | By Nige O'SheaBack to Blog
Confused? You are not alone! New tax rules came into force in April 2009 that changed the make-up of company car fleets forever. The new capital allowance system is aimed at rewarding fleets running cars that produce CO2 emissions at or under the 160g/km benchmark. As a reinforcing measure, it also penalises those that run vehicles with emissions over that benchmark. From now on, expenditure on cars above 160g/km will attract a 10% writing down allowance (WDA) (and will be grouped into a 'special rate pool'). Cars of 160g/km or below will attract the normal 20% WDA (and will be included in the main plant & machinery pool). The 100% first year capital allowances remain for cars emitting 110g/km CO2 or less (...for the moment). When they are sold, the sale proceeds are deducted from the pool but the balance of any remaining value stays in the pool and continues to be written down. Easy!
So...what does it all mean? Well, the impact of all this depends on a number of factors but, for a typical fleet, vehicles purchased after 1 April 2009 (for Corporation Tax purposes), or 6 April (for income tax purposes) and emitting under 160g/km and over 110g/km it will take, on average, 10 years to claim 95% of the available capital allowances. For a vehicle emitting over 160g/km, this rises to more than 25 years. This means that outright purchase fleets will suffer more, although leasing companies will also be affected, so customers may see rental increases, particularly for higher emitting vehicles.
The good news is that businesses can deduct the full cost of finance rentals from taxable profits if the car emits 160g/km of CO2 or less. On cars with higher emissions, there is a flat rate disallowance (called the Lease Rental Restriction) of 15% of the finance rental. This has the effect of improving the Corporation Tax position of higher-priced cars acquired on leases after April 2009, especially those cars that emit less than 161g/km of CO2.
If however, you drive a commercial such as a pick up, providing that you have not already used up your Annual Investment Allowance (AIA) (which is £50,000 this financial year), you can also benefit from writing it all off against taxable earnings. Please note - cars are specifically excluded from this allowance.
Finally, it is the Government's intention (as with company car taxation), to reduce the 160g/km limit over time to reduce pollution in the atmosphere. If you really want to future-proof your policy, cap your CO2 emissions to 140g/km or below. You see - it's easy when you know how!
Read also
Tax benefits of a Truck
Wednesday 31 March 2010
Contract Purchase Benefits
Thursday 04 February 2010
Contract Hire Explained
Wednesday 27 January 2010
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