Company cars – new rules for tax relief - Mazars - United Kingdom
Company cars – new rules for tax relief
Businesses should be aware that the a new basis for working out their tax relief for cars they buy or begin to hire from 1 April 2009. The new rules are simpler and restrictions on tax relief now depend on the emissions level of the car rather than its retail price.
For cars that a business purchases, the cost is added to the business’s normal plant and machinery pools. Expenditure on buying cars with certified CO2 emissions between 110g/km and 160g/km will be added to the main pool which attracts the 20% per annum writing down allowance, whilst the cost of buying cars with CO2 emissions in excess of 160g/km will be added to the 10% per annum writing down allowance pool. Vehicles with emissions below 110g/km will continue to be eligible for an immediate tax deduction for the whole cost with a 100% first year allowance.
For businesses that lease cars, the restriction of tax relief for hire change for cars first leased from 1 April 2009. A 15% tax disallowance will be applied to leasing payments for hiring cars with emissions in excess of 160 g/km. special rules apply to car hire companies, and other specialised hiring.
The old rules for capital allowances on, and leasing of, “expensive” cars continue to apply to cars that businesses purchased or first leased before 1 April 2009.
The practical impact of the changes may make it more costly to provide some company cars. Employers may wish to review their car policies and possibly exclude vehicles with CO2 emissions in excess of 160 g/km from their fleet. The new rules could change the relative after tax costs of purchase or hire. The tax relief a business obtains is only part of the overall tax cost/benefit of providing company cars and employers need to consider whether it may be beneficial to replace provision of a car with an increase in salary. Mazars have assisted companies in reviewing their car schemes to maximise tax efficiency. Please contact any of those listed if you would wish to explore this further.
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National contacts
Alastair Kendrick
Employment Tax Services
+44 (0)20 7063 4438
Nick Bustin
Senior Tax Manager
+44 (0)20 7063 4277
Richard Service
Tax Director
+44 (0)141 225 4935
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