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Capital allowance changes ahead

Car Capital Allowance

How many of you remember the old expensive car rules and the £12,000 limit? Time flies when you are having fun! We have had a system for capital allowance for some years now that allow capital allowances on cars by reference to the CO2 emissions.

Expenditure on cars with CO2 emissions:

  • not exceeding 130 gm/km are pooled in the main pool: and
  • over 130 gm/km pooled in the special rate pool.

Changes are to be made made to the tax relief for business expenditure on cars for expenditure incurred on or after 1 April 2018. Expenditure on cars with CO2 emissions:

  • not exceeding 110gm/km will be pooled in the main pool: and
  • over 110gm/km pooled in the special rate pool.

This is interesting as the last change reduced the limit from 160 to 130gm/km. For many mainstream business vehicles this did not make much difference as many standard 2 litre saloon vehicles were under 130gm anyway. However, the change next year may affect more users as there are a number of 2 litre saloon vehicles which will struggle with the 110gm limit.

In addition, the 100% first year allowance for expenditure on cars will be reduced from cars with CO2 emissions of 75gm/km or less to only 50gm, again for expenditure incurred on or after 1 April 2018. Again, there are not many vehicles which meet the 75gm test and even fewer which meet the 50 gm but not identifying the change could be costly.

Finally, the reduction in the emissions threshold from 130 to 110gms/km will not apply to expenditure incurred under car hire contracts entered into before 1 April 2018 (corporation tax) or 6 April 2018 (income tax) for the purposes of the lease rental restriction.

The answer to all of this of course is to get a double-cab pick-up instead!

You may wish to make clients aware of these changes sooner rather than later as they look change their cars in the New Year.

Written by Mark Morton

Mark Morton

Mark joined HMRC in 1989 and undertook their full training exams. In 1996 he was made Deputy District Inspector for the Derby area and had detailed experience of all types of Revenue enquiries.

Mark joined Mercia as an experienced lecturer and now provides a wide variety of CPD training around the country. He is also a well known contributor to professional publications and provides technical consultancy to the accountancy profession.


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