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The start of the new tax year has seen a number of changes with regard to capital allowances on business vehicles. Here we consider the major changes.
To support the uptake of zero emission vehicles and ultra-low emission vehicles, the Government has extended the 100% first-year allowance (FYA) for cars with low carbon dioxide emissions for a further four years to 31 March 2025. The qualifying emissions threshold for this is reduced from 50g/km to 0g/km for expenditure incurred on or after 1 April 2021.
In addition, the 100% FYA for zero-emission goods vehicles is extended for a further four years to 31 March 2025 for expenditure incurred by a person within the charge to corporation tax (5 April 2025 for expenditure for income tax).
Writing down allowances
Furthermore, the main rate writing down allowance (WDA) of 18% applies to cars with emissions up to 50g/km for expenditure incurred on or after 1 April 2021 (6 April 2021 for income tax).
The special rate WDA of 6% will apply to higher polluting cars with emissions above 50g/km.
A company purchases two cars for £20,000 each in its 12 month accounting period to 31 March 2022. The dates of purchase and CO2 emissions are as follows:
|1 May 2021
||1 May 2021
Allowances in the year to 31 March 2022 relating to these purchases will be:
|White car (main pool as emissions up to 50g/km)
||Blue car (special rate pool as emissions more than 50g/km)
|£20,000 @ 18% = £3,600
||£20,000 @ 6% = £1,200
Lease rental restriction
The new 50g/km threshold also applies in determining the 15% lease rental restriction for costs of hiring business cars for more than 45 consecutive days in relation to contracts entered into on or after 1 April 2021 (6 April 2021 for income tax).
Contact us for advice
If you are planning to purchase vehicles for your business please contact us so we can advise you of the tax reliefs available.