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 before 31 March 2013 qualify for the first-year allowance if the CO2 emissions are 110g/km or less. However, for cars purchased on or after 1 April 2013 and on or before 31 March 2015, the FYA is only available for cars with CO2 emissions of 95g/km or less. Make sure you keep all receipts for expenses incurred in this way.
John has a small family business and is looking to buy a company car.
He chooses a car that has CO2 emissions of 105 g/km and which cost £15,000.
As the car’s CO2 emissions are less than 110 g/km he can claim a 100% first-year allowance thereby obtaining an immediate write-off against profits of £15,000.
If he pays tax at the small profits rate of 20% (financial year 2012) 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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