The annual investment allowance is not available in respect of cars. However, it is still possible to obtain a 100% deduction against profits for a car purchased for your business by choosing a car with very low CO2 emissions. Cars purchased on or after 1 April 2013 and on or before 31 March 2015 qualify for the first-year allowance (FYA) if the emissions are 95g/km or less.
Example:
John has a small family business and is looking to buy a company car.
He chooses a car that has CO2 emissions of 90 g/km and which costs £15,000.
As the car’s CO2 emissions are less than 95 g/km he can claim a 100% FYA thereby obtaining an immediate write-off against profits of £15,000.
If he pays tax at the small profits rate of 20%, claiming the 100% FYA rather than an 18% WDA will save tax of £2,460 in that year. Choosing a low emission car also minimises the benefit-in-kind tax that John will pay on the company car.
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