Capital allowances on low emission cars

As part of the Government’s Green agenda HMRC have confirmed the 100% first year capital allowance on zero emissions cars and goods vehicles has been extended to April 2025 – it was scheduled to come to an end in April 2021.

This is clearly good news for those intending to purchase zero emission cars for their businesses.  The less good news is the reduction in the CO2 threshold for vehicles to qualify for the main annual writing down allowance of 18% - this drops from 110g/km to 50g/km.

Currently cars emitting 50g/km or less can attract the 100% first year allowance while cars between 51g/km and 110g/km can attract the 18% main rate of writing down allowances. Cars purchased from April with emissions from 1 - 50g/km will attract the 18% rate while those above 50g/km will be written down at 6% per year.  This means that, because allowances are given in a pool on a reducing balance basis, cars with emissions over the 50g/km emissions limit will take around 11 years before 50% of their cost has been claimed for tax purposes – very few cars will still be worth 50% of their value in 11 years’ time!

Altogether this gives another reason for those businesses which provide company cars to review their approach to ensure that they are still an economic proposition and they are ensuring they manage their fleet in order to take advantage of the tax benefits available.