Warning to Midlands car market of green tax rules
Mar 25 2009 by Tom Scotney, Birmingham Post
The struggling new car market in the Midlands could be set for a blow if companies do not take advantage of a tax regime due to end in April, according to specialists at business adviser Grant Thornton.
The firm said tax breaks for company cars were set to be replaced with new green rules, and companies looking to take advantage of the old legislation needed to buy their cars before the end of the month.
Currently, cars costing more than £12,000 are dealt with separately from expenditure on other assets. Writing-down allowances are calculated at 20 per cent per year but are restricted to an annual cap of £3,000. When the car is sold, the difference between the tax written-down value of the car and the sale proceeds received can be set against company profits in the year of disposal and reduce the company’s corporation tax liability.
David Jewkes, corporate tax partner at Grant Thornton’s Birmingham office, said: “For companies with fleets of cars above this price, the savings are considerable. For example, under the present capital allowance system a car bought for £25,000 and sold in year five for £5,000 will generate £20,000 capital allowances for the company over a five-year period.
“In contrast, under the proposed regime – where the sale of the vehicle does not enable the remaining capital allowances to be claimed on disposal – it will actually take the company well over 25 years to obtain the same amount of capital allowances tax relief.
“Any companies considering buying ‘expensive’ cars in the near future should, therefore, do so before April 1, to take advantage of the current capital allowance regime.”
From April, the capital allowances that can be claimed on company cars will be based on vehicle emissions. The “greenest” vehicles, with a CO2 output of up to 110g/km can qualify for 100 per cent first-year allowances. Cars with emissions more than 110 g/km will be subject to writing-down allowances of 20 per cent and those with 160g/km or more, ten per cent.
After April 1 for companies and April 6 for unincorporated businesses, these special rules for “expensive” cars will change. Qualifying expenditure will be allocated to one of the two general plant and machinery pools, depending on the car’s CO2 emissions. Cars with emissions over 160g/km will be dealt with in the special rate pool and will attract capital write-down allowances at ten per cent.
These allowances will continue to be given long after the car has been sold or scrapped.
Mr Jewkes added: “Companies need to act quickly. After April, the choice will be to either wait much longer to recover the cost of their investment or take advantage of the 100 per cent capital allowance on a limited range of cars.”
