Capital allowances and cars
The most expensive piece of equipment most small businesses use is a car, but the Government generally doesn’t allow you to claim a deduction for the full cost of a car in the year of purchase. The acquisition cost of most cars must be spread over several years using Capital Allowances, the rate of which varies depending on the vehicle’s CO2 emissions.
Cars with higher emissions qualify for a Capital Allowance deduction of 8% of the reduced cost per year, and cars with lower emissions qualify for an annual deduction of 18% of the remaining cost. The boundary between higher and lower CO2 emissions is 110g/km for cars purchased from April 2018 onwards, reduced from 130g/km for cars purchased in 2015/16 to 2017/18.
Cars with very low CO2 emissions do qualify for a 100% deduction in the year of purchase, but only if the car is brand new and unused when acquired. Very low CO2 emissions is now defined as no more than 50g/km; for cars purchased in 2015/16 to 2017/18 this threshold was CO2 emissions of 75g/km.
New electric cars qualify for 100% first year allowances. The cost of installing charging points for those electric cars also qualifies for a 100% deduction where the expense is incurred by 31 March 2019. Gas refuelling stations for vehicles also qualify for 100% allowances in the first year, if the cost is incurred by 31 March 2021.
All Capital Allowances must be claimed within the tax return for the period in which the cost was incurred, or in an amendment to that return, which can be made up to a year after the filing date for the return.