11th June 2014
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 until 31st March 2015.
Now you may be thinking that this only really applies to electric or hybrid cars, but it does in fact cover a large range of ‘normal’ cars. Manufacturers have been working hard since the rules were introduced to reduce the emissions of their vehicles to make them more attractive to business users, and there is now a wide range of vehicles available that meet the criteria. These range from the budget models from Kia and Hyundai, to mid range vehicles such as the Vauxhall Astra and the VW Golf, and even include offerings from Mercedes. As we move forward the number of manufacturers involved will increase, giving even more choice.
If you compare the capital allowances available to you on the Mercedes A180 CDI Eco, with a similar petrol version, there is quite a large saving to be had. The costs would be around £22,000, so with the Eco version you get the total amount deducted from your taxable profits in year one, with the petrol version the capital allowances available in the first year would total £3,960, and would take around 50 years to be written off in full.
If you are a basic rate taxpayer this would equate to a 20% saving on your tax bill, around £4,400. For a higher rate taxpayer the saving would be 40%, around £8,800, and for additional rate taxpayers the saving would be in the region of £11,000 (these figures are subject to any personal use adjustment that might be necessary).
When we get to 1st April 2015 the goal posts could be moved, but it is not yet known quite how far they will move, and it is likely to be some time before the manufacturers catch up. So if you are thinking of purchasing a new car for your business it may be a good time to buy, and it might cost less than you thought.
Make our business skills work for you and your business. Call us with any questions about whether to purchase a company car and the tax consequences.