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New Rules on Company Cars

New rules for tax relief on business cars will affect cars bought or leased from April 2009. As a result, you may decide to change your car sooner rather than later because it may make a big difference to the timing of the capital allowances.

Under reforms detailed in the Pre-Budget Report, writing allowances for cars are to be based on a car's carbon dioxide (CO2) emissions. The changes will effect cars acquired after the 31st of March 2009 for companies and after 5th of April 2009 for Sole Traders and partnerships.

From next April, only cars with co2 emissions up to 160 g/km will qualify for the present 20% writing down allowance. Cars emitting more than 160 g/km will attract allowances at only 10%. Buying a higher emitting car before April will therefore preserve the higher rate of relief.

Time to buy now?

However, even for more expensive cars with emissions up to 160 g/km it may be better to buy now. At present, if you buy a car costing more than £12,000, writing down allowances are restricted to £3,000 a year, but there is a balancing allowance when you dispose of it. The result is that the whole capital cost of the car is allowed for tax over its lifetime.

The New Rules remove the £3,000 limit and the balancing allowance. For expensive cars that depreciate faster than the rate of capital allowances, this means there may be a significant shortfall in allowances compared to the cost of the car over its life.

For sole traders and partnerships, allowances on cars with private use will continue to be calculated on each car separately. So if you buy an expensive car after 5 April 2009, you will benefit from the abolition of the £3,000 allowance limit without losing the advantage of a balancing allowance on eventual disposal.

Leasing for business

Businesses that lease expensive cars should benefit under the new rules. The present restriction to tax relief on lease rental payments for all cars costing more than £12,000 will be replaced by a disallowance of 15% of lease rental payments on cars with co2 emissions above 160 g/km, regardless of cost.

We can help you plan your business expenditure on cars to maximise your tax relief and advise you on how directors and employees will be taxed if you provide them with company cars.

New advisory fuel rates

From 1st of January 2009, new advisory fuel rates apply to all journeys. The rates are reviewed twice a year, with changes taking effect on 1st of January and 1st of July. For the purpose of these rates, HM Revenue & Customs treats petrol-hybrid cars as petrol cars.