Capital allowances on cars - disaster strikes by Rebecca Benneyworth

The new capital allowances regime for cars has been developed over a long period of consultation, but Rebecca Benneyworth is concerned that businesses still didn't see the impact of the changes in sufficient detail

AccountingWEB.co.uk members will probably be aware that I travel many thousands of miles a year for work, and that I do so by car – this being the only credible method of transport appropriate for my business.

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Comments

HMRC confirm CA position

AnonymousUser | | Permalink

We've been following this up, and have got confirmation from HMRC that the VAT rules are used for CAs too, so double-cab pick-ups with more than a 1 tonne payload can be covered by the AIA. Details on our site here:
http://www.taxation.co.uk/taxation/articles/2009/06/05/18909/tax-break-confirmed-pick-ups

Mike Truman
Editor, Taxation magazine

RJ&Co's picture

Self drive hire cars

RJ&Co | | Permalink

Just to be clear, as I understand it, a company providing self drive hire cars, which themselves are straightforward vehicles with no adaptations, say an off the shelf Ford Focus or Vauxhall Astra, will not be able to claim cars acquired as plant and machinery under the AIA rules. They will simply qualify for 20% annual write downs. Firstly, can someone confirm that what I have just said is correct, please?

Secondly, how does that relate to the new 40% first year allowance recently announced, principally for assets which would have qualified for AIA relief, but for the fact their cost is in excess of the £50k annual limit. If an asset qualified for FYA under the old rules, (like a qualifying hire car, i.e as described in the first paragraph) but doesn't qualify for AIA, (because its specifically excluded, like I think a qualifying hire car is) would that asset still qualify for the 40% new FYA? So if my client with the small hire car business can't get AIA relief on his new cars, could he at least claim 40% FYA under the new rules?

And thirdly, do you think that the Bozos who live on Planet Westminster and Planet Whitehall have the slightest idea of the absurd complications and anomalies that they inflict on those of us who live on Planet Earth?

Yours, (reaching for the aspirin bottle)

Richard Joseph

RebeccaBenneyworth's picture

Thanks Mike

RebeccaBenneyworth | | Permalink

A speedy response from HMRC press office after a concerted attack regarding the vans question. It is great to have clarification and very good news for those buying double cabs - AIA is available provided they meet the widely appreciated definition of a van.

I understand that HMRC will make this clearer next time they update the guidance - which will be for the FA 09 changes.

1 tonne rule

Anonymous | | Permalink

HMRC's guidance on double cabs is in its manuals see http://www.hmrc.gov.uk/manuals/eimanual/eim23045.htm quite interesting to note that the 1 tonne rule applies only to double-cab pick-ups.

Plates
Thanks for those comments Leon, and I do appreciate all the arguments about intangibles and numberplates I just don't get them. My line of thinking is that you buy a cherished number plate because you like it, a bit like buying a painting, or an investment such as a share. Sure the asset is generally worth more than what it is made of, but the difference is just a result of the market. Some tangible assets, such as shares, for instance are made up of a bundle of other rights, but that does not prevent the share certificate still being treated as a tangible asset.

Its a faux green measure and

Cynical_Templar | | Permalink

It's another lesson is how to snatch defeat from the jaws of victory.

Sub 110 g'km is still the preserve of the very small car so will not force decision making in that direction.

If they had given 100% allowances to sub 120 g'km cars, they are lots of practical options for sales fleets and i belive you would have seen many companies changing their purchasing decisions. Yes slightly more CO2 emission but far better than simply provided losts of people with 150g/Km + cars.

Unless of course you don't actually want to give away much tax relief with this option but want to be able to say you are bringing in green legislation ;)

Plates

leon0001 | | Permalink

Nichola, the number plate itself, a piece of plastic attached to the car, should be treated in the same way as any other accessory such as a radio or mud flaps. However, the personal registration number (eg AC01 WEB) is issued by DVLA. The right to use it or transfer it to a particular vehicle can be bought from a personal numbers dealer or at a DVLA auction. The right to use the number is independent of any particular vehicle and can exist separately on a certificate issued by DVLA. The number itself continues to belong to DVLA and can only be used with their continuing consent. After further thought the right to use it exists as a licence. It would therefore appear to be analogous to computer software, albeit only one line of code. It is also worth noting that the number can be cancelled at any time by DVLA, for example where it has been displayed in an illegal format or if the numbering system changes, as happened in Ireland.

Double Cab pick ups

okevin | | Permalink

Thanks Rebecca,

Applying the rules strictly in their literal meaning it would appear to rule out a claim for CA's on these vehicles.

Whats your thoughts on these?

Is it a van for B-I-K purposes?
Is it a commercial vehicle for input vat recovery?

RebeccaBenneyworth's picture

Fixing the graphs

RebeccaBenneyworth | | Permalink

Ahhh. I can fix them on my computer, but then I need to get production to re-do all the fancy stuff to turn it into what shows on screen. You've heard it before, but when the new content management system comes on stream (about 2 weeks now!!) I'll be able to do it all myself. So look out for more graphs in the future, and I'll check them better next time!

RebeccaBenneyworth's picture

Double cabs and capital allowances

RebeccaBenneyworth | | Permalink

It is certain that double cabs do not meet the statutory definition of "not a car" - if anyone is in doubt see Section 81 CAA 2001.

However, the view has been expressed to me that HMRC use the same concession here as they do for VAT and BIK law - based on the load capacity of over a metric tonne. The problem is that I can't see any such reference in the Capital Allowances Manual (although I may have missed it - so shout anyone who has seen it!) and this leads me to suspect that it doesn't apply. That and a couple of questions I've had over the last year or so on courses from delegates who have had problems with it.

The fact that people have claimed before is of little help - I've had all sorts of claims admitted to in the last year, including FYA on a car used as a taxi (wrong, but the £12,000 rule did not apply) and others. It would seem that compliance in this area is a bit patchy? Crikey that probably didn't help, but if anyone on the "other side" as it were can enlighten us, it would be brilliant. This area is calling out for certainty!

More guidance on cars, taxis (I understand Hackney carriages are not cars) hire cars, driving school cars double cabs would be excellent, then we would all know what we're doing.

Plates

Anonymous | | Permalink

Surely you mean a tangible asset? Should be no bik on a number plate if it is owned by the company.

Personal number plate on Porsche

leon0001 | | Permalink

The actual plates are an accessory. The right to use the personal number, purchased from DVLA or third party, would appear to be an intangible asset, completely separate from the car.
If it advertises the business, the cost of acquisition should surely be expensed as advertising & marketing. It may be necessary to amortise over more than one year.
If owned by the director, it can presumably be sold or hired to the company.

Double cab pick ups and allowance claims

Anonymous | | Permalink

Many farmers are using double cab pick ups as work vehicles does the legislation say we can not claim AIA? Also what about land rovers? Has anyone claiming FYA or WDA been challenged regarding the claim?

Malcolm Veall's picture

Owner / directors

Malcolm Veall | | Permalink

Rebecca,

Accepting that these clients are not who you were thinking of, some of them do very much use their cars as tools of their job. While it is true in a lot of cases that the mileage rate does not cover the full cost of running a high business mileage car the sums always show that keeping the car out of the company is the best alternative. (The new set-up guys are always frustrated as there is an urban myth that cars are a goldmine of tax saving - I even had one chap say that he was thinking of writing a book so he was going to form a company so that he could save tax by claiming for his car).

Graphs - you may have transposed the colours between the 2 graphs but please do not be discouraged - your piece is by far the clearest explanation of the effect of the changes I have seen.

@ Rebecca

okevin | | Permalink

Hi,

Just picking up:) on your double car pick up point. You mentioned that this may not be a "van" and having looked s81 CAA 2001 can see what you mean.

81
Extended meaning of “car” In this Part “car” means a mechanically propelled road vehicle other than one—
(a) of a construction primarily suited for the conveyance of goods or burden of any description, or
(b) of a type not commonly used as a private vehicle and unsuitable for such use.
References to a car accordingly include a motor cycle.

Where do we find guidance on how to make a decision on what is a van and what is not? Is this a point of contention for arguing or is their a "list" which clarifies?

I know that we have claimed double cab pick ups to be vans in the past!

Thanks

RebeccaBenneyworth's picture

Late news just in

RebeccaBenneyworth | | Permalink

HMRC has today released the statistics on how many drivers had what sort of company car for 2006-07. What is very interesting is that around 65% of drivers of company cars are driving cars emitting no more than 160g/km, and 67% of company cars are diesel (lower emissions I guess).

Compare this to 2002-03 when 41% of company cars emitted less than 165 g/km and 67% were petrol. This does illustrate quite well how the benefit in kind changes have driven behaviour (forgive the pun).

The number of taxable company cars has also declined from 1.37 million to 1.16 million, a reduction of 210,000 or 15%.

RebeccaBenneyworth's picture

@ Mike

RebeccaBenneyworth | | Permalink

Yes, I only noticed today - sorry about that. I'll try a bit harder in future.

@ John in your Porsche - if self employed, laughing (make sure you do some private mileage). If a company, out of luck I'm afraid.

@ Malcolm - I wasn't really looking at the guy doing limited miles and car in/out question. I wanted to look at those actually using the car as a tool of their job - a driving employment if you like. In these cases 40p per mile doesn't even touch the cost of running the car for 40,000 to 60,000 miles a year (typical rep mileage) . I guess one alternative is for the company to pay the employee the full cost of business motoring plus a premium to account for the tax he will bear on the payments. The company would then get 100% relief on the amounts so paid.

@ Alistair - I am expecting that the cost of both leasing (not applicable to high mileage anyway) and short term hire would have gone through the roof because the hire company will be following the same capital allowances model. So if expenditure is effectively disallowed for tax, this would be passed on to the customer? Anecdotally this seems to be true but maybe someone can give us some numbers? And I wonder whether a short term hire business can actually survive given the tax model?

Fast mover.

lawmaniz | | Permalink

Where does that leave me with my shiney new metallic silver Porsche 911? (With personalised number plate too - is that tax-deductable as well?)

Low marks for the graphs !

mikewhit | | Permalink

You swapped your data series colours over between the two graphs !

Unnecessary and highly confusing at first glance ... please improve your usage of graphs ...

Extra marks if you fix them !

Planes, trains and vans

Anonymous | | Permalink

What you really need is a whole fleet of vehicles, and so you can max out on capital allowances:

  • The advantages of your personal jet/chopper/motorboat/submarine are obvious, but heavy on benefits in kind (bik) charges and parking and storage is a bit of a problem for most of my clients.
  • There is no car bik charge for a Hummer, although I was thinking that if I use an ice-cream van in the summer (also no tax charge as not commonly used as a private vehicle) I could also flog lollies when I am stuck in traffic jams.
  • No bik charge for commuting by van either.
  • Motorcycles and bicycles, there is a bik charge but so nice in the summer.

Suppose you could then just have an electric car in reserve for when one of the above breaks down.

p.s. In response to below, a motorbike is surely a bi-cycle that is mechanically propelled. So any more than two wheels not a bike. Not entirely sure where that leaves you if you drive something like a VW powered trike

Malcolm Veall's picture

Mileage Allowance

Malcolm Veall | | Permalink

1. I cannot remember the last time I did the sums and one of my owner-manager clients was advised to take corp tax relief and suffer the B-in-K; rather funding the car privately, (maybe out of dividends), and claiming business mileage always came out on top. The new pooling rules make this an even more prdictable calculation.

2. Could someone point me in the direction of the definition of a motorcycle? (Q is a Piggio MP3 a motorcycle?)

One other option

Anonymous | | Permalink

Is there not another option here - contract hire? No big deposit to fund a purchase, claim half the VAT back on the lease payments and as long as less than 160g/km, tax relief on the payments in the year you make the payments. I know you don't own the car but more and more of my clients are switching to this option.

RebeccaBenneyworth's picture

Yes, I too find difficulty

RebeccaBenneyworth | | Permalink

getting my leg over now! I did ride a big Honda 750 for a while, but it's darned cold in winter, and I'm getting older.

Perhaps a Harley, which is a bit lower and more forgiving of my ancient limbs ....My clients (and lecture delegates) were quite keen to see me in leathers funnily enough. But flattering? Bike leathers? NOT!

Great article Rebecca

AuntMildred | | Permalink

Horrible legislation though.

Unfortunately at my age, the motorbike isn't an option !

Not that I would take a bike to see my clients, half of them still think the car is a new invention - not sure what me turning up in leathers would do to them !

Capital Allowances on cars

dhollister | | Permalink

So much for the Government 'helping the country's motor industry'. If this is help then I'd rather not have it, thank you.

If every practitioner with clients who are going to be adversely affected by this crazy legislation - and thats all of us - were to lobby David Cameron on this particular issue then perhaps we might achieve a change.

On the other hand, some of us have a greater belief in the tooth fairy than in any kind of democratic process, be it red. blue, yellow, green, or even purple.

I have long been asking DC's office to make a long list of all Brown's unfair and unjust legislation and to promise to repeal all of it. Answer comes there none.

No wonder so many people choose the black economy. If I were in any other profession I'd choose it myself.

Has there been a change in the rules for bicycles?

Anonymous | | Permalink

A prospective client advised me that they had been advised that they could now get favourable tax relief on the purchase of a bicycle used within his sole trader business. They subsequently spent £3K on said bicycle.

Is anyone else aware of this?

Company Motorcycle

Anonymous | | Permalink

I switched from a company car to a company motorcycle some years ago. Even before the new rules took effect it was a no-brainer:
VAT is claimable on a new motorcycle
No hold-ups in traffic; simply filter between lanes
You'd be amazed how many files you can get in the panniers and top-box
No congestion charge
Allowed to use the bus-lanes
Easier parking
Cheaper to run and greener than a car
At first I was concerned about client-perception. In the event I needed have worried - most clients are favourably impressed and quite a few have copied me and got their own motorcycles

Car Industry

frankdavid | | Permalink

When you look at more expensive cars the figures get even worse. Its no wonder that companies are not buying Jags, Land Rovers etc, which was the Chancellors intention when the changes were introduced,but then why bottle out out by giving state loans to the very same companies. It may also be relevant that our one eyed prime minister cannot drive.

Joined up government ? they cannot see past their expenses sheets

Cars can't be short life assets

Anonymous | | Permalink

They are first in the exclusion list.
If something in tax looks too easy, in my experience it is generally wrong !

Short life asset?

GraceinGlasgow | | Permalink

Can the company choose to treat each such car as a short life asset? That would give it a separate pool and balancing allowance could be claimed. But there must be a snag or everyone would be doing it!

capital allowances on cars

davehfdr | | Permalink

What about electing for the Mondeo to be a short life asset, as far as i am aware this is still allowed under the new regime

David Moore FCA
DJM Accountancy Ltd
Cleethorpes