A reminder of the new rules is shown below. It must however be remembered that the rules are subject to any amendments made during Parliamentary approval of the proposed legislation.
The main change is that for expenditure after the date of change, the concept of the “expensive car” disappears. Instead capital allowances are given according to the CO2 emissions of the car.
New expenditure on a car on or after 1 / 6 April 2009
Cars with a qualifying emissions certificate showing:
• No more than 110g/km
The business will be entitled to a 100% first-year allowance (this will apply until at least 31 March 2013).
• 111g/km and 160g/km
If the car is used exclusively for business purposes it will be placed into the general plant and machinery pool and receive a 20% writing down allowance (WDA).
• Above 160g/km
If the car is used exclusively for business purposes it will be placed into the 10% special rate pool.
No distinction is made between petrol and diesel cars when considering emissions.
Cars which do not have a qualifying emissions certificate
The registration date of the car is the vital piece of information in this circumstance.
• Cars registered on or after 1 March 2001
These cars should be allocated to the 10% special rate pool.
• Cars registered before 1 March 2001
These cars should be allocated to the main 20% pool.
Regardless of the cost of the car, there will be no restriction of allowances during periods of ownership (unless there is private use – see below). On disposal, as the vehicles will be in a pool, balancing adjustments are unlikely to arise.
Private use implications (non-corporates)
Cars with private use will still be de-pooled and therefore give rise to balancing adjustments. The only change will be that from 6 April 2009 the WDA will be based on the level of emissions, as above.
Cars that are treated as being expensive prior to April 2009
Expenditure incurred on cars before April 2009 will, in general, continue to be subject to the old “expensive” car rules and “de-pooled” for a transitional period of around five years.
It is proposed that the transitional period will end on the last day of the business’s first chargeable period to end on or after 5 April 2014 (31 March 2014 for companies). After this transitional period, any expenditure remaining in a separate expensive car working (unless there is any non-business use of the car) will be transferred to the main capital allowances pool.
Car leasing
Leases commencing on or after 1 / 6 April 2009
The previous lease rental restriction for expensive cars has been reformed along the same lines. The changes are:
• the abolition of any lease rental restriction for all cars with CO2 emissions up to 160g/km, permitting the full allowance of leasing payments against the profits of businesses leasing those cars; and
• the application of a uniform fixed percentage disallowance of 15% on the leasing payments that businesses can offset against profits for all cars with emissions above 160g/km i.e. those that would be dealt with in the 10% pool.
Where there is a chain of leases, this restriction will only apply to the payments made by one lessee in the chain.
The restriction will not usually apply to short (45 consecutive days or less) leases.
• there will be no restriction on the lease rental of a motorcycle.
Leases commencing prior to 1 / 6 April 2009
Expenditure under leases that commenced prior to 1 or 6 April (that is where the car is made available to the business before April 2009) will continue to be subject to the “old” rules.
Definition of a car
In order to correctly calculate allowances due, it is essential that the definition of a car (as revised as of April 2009) is understood.
CA2001 s268A Meaning of "car" and "motor cycle"
1. In this Part "car" means a mechanically propelled road vehicle other than -
a) a motor cycle,
b) a vehicle of a construction primarily suited for the conveyance of goods or burden of any description, or
c) a vehicle of a type not commonly used as a private vehicle and unsuitable for such use.
2. In this Part "motor cycle" has the meaning given by section 185(1) of the Road Traffic Act 1988.
In particular, from April 2009, motor cycles are specifically excluded and hire cars, taxis, driving school instructor cars etc. are included.
Further information
For further information see Clause 30 of Finance Bill 2009.
Sharon Cooke
June 2009