It’s possible to claim capital allowances on cars which are bought for business use. This means you can deduct part of the value of the car from your profits before tax. Unfortunately, cars do not qualify for the Annual Investment Allowance, but you can use the Writing Down Allowance to work out what you are eligible to claim for.
What is considered a car for Capital Allowance purposes?
You can claim capital allowances on cars you buy and use in your business. This means you can deduct part of the value from your profits before you pay tax. For capital allowances, a car is:
- Used by most people privately
- Suitable for private use (including motorhomes)
- Not built to transport goods
What is not considered a car?
- Lorries, trucks and vans
- Motorcycles (unless they were bought before 6 April 2009)
You can claim Annual Investment Allowance (AIA) on the latter vehicles listed above because they are not considered cars.
Vans, trucks and lorries are generally considered main pool assets for capital allowance purposes, and therefore a Writing Down Allowance (WDA) of 18% can be applied.
Until 31st March 2020, provided that the government’s Plug-In Van Grant has not been claimed, vans emitting 0g/km of CO2 qualify for 100% of the first-year allowance.
The rules regarding capital allowances and cars
Under section 38B of the Capital Allowances Act 2001, the cost of a car does not qualify for the AIA. However, if you are buying a car for use in your business you can use the WDA to deduct part of the value of the car from your company’s profits before you pay any tax.
As long as no other claim has been made (including the capital allowance), you can claim simplified mileage expenses on business vehicles if you are a partner or sole trader.
The date you bought the car and the car’s CO2 emissions will determine the capital allowance available and the rate of relief you can claim.
For limited companies, the main and special rates apply from 1st April, whereas for sole traders and partners it is the 6th of April.
For all businesses, the First-Year Allowance (FYA) rate is applied from the 1st of April.
First-year allowances
The government uses the FYA to persuade companies to invest in green cars. A business can set the full cost of a car against profits in the year of the purchase of the car if it satisfies certain criteria.
100% FYAs are available on new and unused cars where C02 emissions are 75kg/km or less if the car is purchased on or after 1st April 2015 and before 1st April 2018. If the car was purchased after 1st April 2018 and before 1st April 2021, the emissions must be 50g/km or less.
A 100% FYA also applies to zero-emission vans if it has been purchased as new and unused before 1st April 2021.
Please note – FYAs are only available on new and unused cars and second-hand cars do not qualify. WDAs are available as an alternative option for second-hand cars.
Main rate and special rate allowances
You can claim one of the following:
- The full value of the car as 100% first year allowances
- 18% of the car’s value (main rate allowances)
- 6% of the car’s value (special rate allowances)
Which rate you can claim depends on when you bought the car and its CO2 emissions. More information about the main and special rate allowances pools is available on the government’s website. You can also check your car’s CO2 emissions as well.
Main and special rates apply from 1 April for businesses that pay Corporation Tax, and 6 April for businesses that pay Income Tax. The 100% first year allowances rate applies from 1 April for all businesses.
Single asset pool
If your car is used for both personal and business purposes, it must be allocated to a single asset pool. The amount that the car is used for personal journeys is taken into consideration, and the allowance will be reduced to reflect this. Depending on the car’s C02 emissions the allowances are calculated at a rate of either 6% or 18%.
Fusion Business Services can take the stress out of limited company accounting
Fusion Business Services provides a contractor accountancy service with a difference. Rather than offering a couple of packages for you to choose from, we provide a fully-customisable service allowing you to choose exactly what you want. This allows you to be certain you’re getting unbeatable value for money by not paying for extras you don’t need. We also have special accountancy services for sole traders, SMEs and CIS limited companies.
For more information about Fusion Business Services, please complete the short form on this page, call our team on 0800 2294020 or schedule a free consultation.
