Cars that do not qualify for first year allowances (see Tip 59), or in respect of which the FYA is not claimed, are instead given a writing down allowance (WDA). The rate of WDA depends on whether the car is allocated to the main rate pool or the special rate pool, which in turn depends on its level of CO2 emissions.
Expenditure on cars incurred prior to 1 April 2013 (corporation tax) or 6 April 2013 (income tax) is allocated to the main rate pool if the car’s CO2 emissions are 160 g/km or less. The threshold is reduced to 130 g/km from 1 April 2013 (corporation tax) and 6 April 2013 (income tax). Assets in the main rate pool attract a WDA of 18% (20% prior to 1 April 2012 (corporation tax) and 6 April 2012 (income tax)).
Cars with emissions exceeding the main rate pool threshold are allocated to the special rate pool, attracting an 8% WDA (10% before 1/6 April 2012).
Cars with lower CO2 emissions receive a higher rate of WDA which means expenditure will be relieved against tax sooner. Choosing a car with emissions below the main rate threshold will generate higher capital allowances and save tax in the short term.
Brad is looking into buying a new car for his business. The car he likes costs £20,000 and he is deciding between two different models, one with CO2 emissions of 150 g/km and one with CO2 emissions of 165 g/km.
If he incurs the expenditure before 1/6 April 2013 and chooses the lower emission car he will receive WDAs at the rate of 18%. If he delays the expenditure to beyond 1/6 April 2013 or chooses the higher emission car, he will only receive WDAs at a rate of 8%.