The rules for claiming capital allowances on cars changed for cars that were purchased on or after 1 April 2009 for Corporation Tax purposes and on or after 6 April 2009 for Income Tax purposes.
Since 17 April 2002 certain very low CO2 emission cars (including electrically propelled cars) qualify for a 100 per cent first-year allowance.
Definition of car for capital allowance purposes
For capital allowance purposes, a car is any mechanically propelled road vehicle unless it is:
- constructed in such a way that it is primarily suited for transporting goods of any sort
- not commonly used or suitable for use as a private vehicle
This means that vans and lorries are not considered to be cars, whereas motor homes are. However, certain vehicles such as driving school vehicles with dual control are not treated as cars for capital allowance purposes although they may be classed as cars for other tax rules. For purchases on or after 1/6 April 2009 motorcycles are not cars for capital allowance purposes, though they were before that date.
If a vehicle is not a car, the special rules for cars do not apply to it and the other allowances in this guide may be available.
Please note that this definition of a car for capital allowances may not be the same as that used for other aspects of your Income Tax or Corporation Tax, or for other taxes such as VAT, or by other government departments.
Capital allowances on cars bought on or after 1/6 April 2009
The capital allowances you can claim on your cars are based on CO2 emissions, which are shown on the car's V5 certificate.
If your car does not have an emissions figure because it was first registered before 1 March 2001 then the expenditure is allocated to the main pool, or a single asset pool if there is non-business use - see below.
If your car does not have an emissions figure but it was first registered after 1 March 2001 then the expenditure is allocated to the special rate pool, or a single asset pool if there is non-business use - see below.
The table below only applies to cars with 100 per cent business use.
Capital allowances treatment according to emissions levels
|CO2 emissions||Capital allowances treatment of expenditure|
|Over 160 grams per kilometre (g/km)
The threshold will be reduced to 130g/km from 1/6 April 2013 (subject to legislation)
|Goes into the special rate pool and qualifies for writing-down allowances at the rate for the special rate pool, 8 per cent per annum.|
|160g/km or less
the threshold will be reduced to 130g/km from 1/6 April 2013 (subject to legislation)
Goes into the main pool and qualifies for writing-down allowances at the rate for the main pool, 18 per cent per annum.
Expenditure on second hand cars with very low carbon dioxide emissions is pooled in the main pool.
For new unused cars with very low CO2 emissions see the box below.
|110g/km or less (but note that threshold will be reduced to 95 g/km from 1/6 April 2013 (subject to legislation))||If you buy a new, unused car you can claim up to 100 per cent alowance in the accounting period when it was bought, the balance (which may be nil) goes into the main pool in the next year. For detailed guidance, see our guide on first-year allowances: the basics.|
Example: If you are self-employed, you pay Income Tax and your accounts are drawn up for the year to 5 April 2013 and you spent £20,000 on a car that you use 100 per cent for your business that has CO2 emissions of 165g/km, the calculation is as follows:
Cost of car = £20,000
Writing-down allowance deducted (£20,000 x 8 per cent) = £1,600
Value to carry forward = £18,400
Capital allowance you can claim = £1,600
Note that there are special rules for cars that are not used wholly for business purposes - eg for private use. To check the details see the later section 'If you or an employee use the car partly for non-business use'.
Capital allowances for cars bought before 1/6 April 2009
Capital allowances treatment according to vehicle cost
|Original cost||Capital allowances treatment of expenditure|
|Up to £12,000 with 100 per cent business use||The cost or value was added to the main pool and qualified for writing-down allowances at the rate for the main pool, currently 20 per cent.|
|Up to £12,000 with non-business use||The cost or value was added to a single asset pool (one for each mixed-use car) and qualified for writing-down allowances at the rate for the main pool and the allowance was then restricted to reflect non-business use.|
|More than £12,000||The cost or value was added to a single asset pool (one for each car) and qualified for writing-down allowances at the rate for the main pool, currently 20 per cent. The allowance was then restricted to a maximum of £3,000 per year and was further restricted to reflect any non-business use.|
The above rules in relation to expenditure on expensive cars in single asset pools continue for a transitional period of five years ending on the last day of the first accounting period to end on or after 5 April 2014. After this date, the balance is moved into the main pool unless the car was used for non-business purposes.
For more information, see the page in this guide on writing-down allowances.
Example: If you are self-employed, pay Income Tax, your accounts are drawn up for a full year to 5 April 2012 and you spent £25,000 before 6 April 2009 on a car that is used wholly for business purposes, then the calculation is as follows:
Cost of car in 2088-09 = £25,000
Balance brough forward from 11/12 = £12,800
Writing-down allowance (£12,800 x 18 per cent) = £2,304 less than £3,000 so no restriction required
Writing-down allowance you can claim in the year = £2,304
Balance after allowance = £10,496 (£12,800 - £2,304)
If you or an employee use the car partly for non-business use
There are special rules for items that are not used wholly for business purposes - eg for private use. These rules - summarised below - apply to expenditure on cars incurred both before and after 1/6 April 2009.
If you are a self-employed individual or partner in a partnership, pay Income Tax and use one or more cars yourself partly for non-business purposes, you will have to work out the capital allowances for each car separately. You do so by adding the expenditure for each car to a single asset pool and calculating the maximum allowance available for that expenditure. You must then reduce your claim by the amount of your non-business use so that only the business use proportion is taken into account.
If your business provides cars to employees and they use them for private purposes, the cars are treated as being for 100 per cent business use. However, the expenses and benefits tax rules for cars provided to employees will apply - see our section below.