Guide

Reducing your vehicle emissions

Tax breaks for low-emission vehicles

You can benefit if you buy and use certain low-carbon emission cars and vans, and zero-emission goods vehicles.

Capital allowances

If you buy a new car for your business that has CO2 emissions of 95 grams or less per kilometre (g/km) driven, or is electric, you can qualify for a 100 per cent first-year capital allowance. This allows you to offset the whole cost of the investment against taxable profits in the year you make the purchase.

For other cars, tax relief for business expenditure on cars is now based on CO2 emissions.

These changes took effect on 1 April 2013 for corporation tax and on 6 April 203 for income tax. You will need to group your vehicles into pools depending on their emissions.

Cars with CO2 emissions of less than 130g/km qualify for 18 per cent capital allowances in the main rate pool. Cars with CO2 emissions over 130g/km qualify for 8 per cent capital allowances in the special rate pool.

Businesses that purchased cars before the above dates and have an accounting period that does not match the tax year, eg 1 January 2013 to 31 December 2013, will be subject to the old rules for a transitional period.

Employees and directors provided with a car or van for their private use that runs solely on electricity or which cannot produce CO2 under any circumstances when driven will qualify for a nil rate of income tax. The nil rate came into force on 6 April 2010. The benefit-in-kind tax rate for ultra-low emission cars (75g/km or less) has also been reduced to 5 per cent.

You can also claim a 100 per cent first-year allowance for business expenditure on new and unused (not second hand) electric vans. This applies for expenditure from 1 April 2010 for companies paying corporation tax and from 6 April 2010 for businesses paying income tax.

Vehicle taxes

There are a number of taxes that affect, or could affect, your business' use of motor vehicles. These taxes aim to encourage you to reduce your vehicle use and emissions.

New cars have fuel economy labels which show how fuel efficient they are. The label shows how much CO2 the car emits and also how much vehicle tax you will have to pay each year. Lower CO2 emissions mean lower vehicle tax and lower running costs.

Road tax, or vehicle excise duty (VED), and the company car tax system are now based on the amount of CO2 emissions that a vehicle produces, with the most polluting cars paying the highest rate.

Find information on tax for company cars and how to calculate the benefit-in-kind tax payments.

You could significantly reduce the rate of fuel duty you pay by switching your existing vehicles to run on alternative fuels such as liquid petroleum gas (LPG), bioethanol or biodiesel - see Fuel Duty.