Do you know the rules on claiming capital allowances on cars?

If you buy and use cars in your business, you can claim capital allowances on their value, allowing you to deduct part of the value from your pre-tax profits using writing down allowances.

The amount that you can deduct depends of the CO2 emissions of the car, whether it is new or second hand, when you bought it and the amount you paid for it. If you are a sole trader or a partner, the amount you can claim will also depend on how much you use your car outside the business.

Sole traders and partners also have the option of claiming simplified mileage expenses on business vehicles, if they have not claimed for them in another way.

The official definition of a car for the purposes of capital allowances is a vehicle that is “suitable for private use, most people use privately and was not built for transporting goods.” Lorries, vans and trucks are explicitly excluded, as are motorcycles bought after 6 April 2009.

A related consideration, if you are looking to buy and use a car in your business, is vehicle tax. From 1 April 2017, there are substantial increases due to come into effect, which could impact on vehicle choice and costs.

Cars emitting 91-100 g/km of CO2, which are currently tax-free, will incur £100 a year in road tax. Larger family cars in the 151-170 g/km band currently incur £185-£300 in tax, but from 6 April will incur £500 in tax in the first year.

The most polluting cars will see an increase from £1,120 to £2,000 in the year following registration, and if they are worth more than £40,000, will incur an additional charge of £310 per year, for five years.

If you are looking to purchase and use a car in your business, please contact us for advice on doing so in a tax efficient way.

Link: Claim capital allowances