Cookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.
New Capital Allowances Rules for Cars
Newsletter issue - January 08.
Cars that cost over £12,000 get special treatment for capital allowances. The capital allowance for each car must be worked out individually as there is a cap of £3,000 per car that can be claimed per year. This is different to other assets such as machines, where the costs are added together in a pool, the capital allowance is then calculated on the total value of the assets in the pool.
The individual capital allowance calculation per car is fiddly but it does have advantages, as when you sell or scrap the car you get immediate tax relief for the remaining cost of the vehicle. Assets sold out of the pool do not get full tax relief on sale as only the sales proceeds are taken out of the pool which may be less than the cost of the asset which has yet to be given tax relief through capital allowances.
From April 2008 the distinction for cars costing over £12,000 is likely to be swept away. The Government has proposed that cars will be categorised on the basis of their CO2 emissions. Three or more pools may be established for cars that have low, medium or high CO2 emissions. Low emissions cars (up to 120g/ km) will qualify for a 100% first year allowance, as now. Those in the middle band are likely to qualify for a 20% capital allowance per year, and the most polluting cars will only qualify for a 10% annual allowance. This will lengthen the time over which tax relief for the full cost of the cars will be given. Also the ability to get immediate tax relief for the balance of the cost on the sale of a car will also be lost.
The new rules for capital allowances on cars have not been confirmed yet. They may only apply to cars purchased on or after 1 or 6 April 2008, as reorganising the existing cars into the new pools would be very difficult, although if that was the case it may be beneficial to sell the car prior to April 2008 to ensure any balancing allowances are obtained. Alternatively, if you are planning to buy a new car in 2008, you should think about the timing, as a purchase from April onwards could mean a long wait to get full tax relief for the cost. In summary, if you are thinking of buying or selling cars there may well be an advantage in doing so before April 2008 but keep in touch with us for up to date information if you are considering this.
