Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

PBR 2008: Company cars – the final piece of the jigsaw. By Rebecca Benneyworth

by
26th Nov 2008
Save content
Have you found this content useful? Use the button above to save it to your profile.

The long awaited information on the new capital allowances rules for cars is now available. Although we are still awaiting a technical note on some of the finer detail, advisers and companies can now start to make decisions about when to replace company cars.

PBRN 17 provides sufficient detail to establish how the rules will work from next April. The new rules will apply to cars purchased on or after the date of change, so the concern about how the new rules would affect existing cars is allayed. There is one small point to bear in mind. Existing cars which originally cost more than £12,000 will remain de-pooled and therefore attract a maximum WDA of £3,000 in future, but will also have a balancing charge on sale. After five years, however, the car will be transferred to the appropriate pool, and no balancing allowance would therefore be available.

The basic rules

The capital allowances are to be determined by the CO2 emissions of the vehicle, irrespective of cost. Cars emitting no more than 160g/km of CO2 will be added to the main pool, and therefore will attract Writing Down Allowance (WDA) of 20 per cent per annum.

Cars emitting more than 160 g/km will be added to the special rate pool and will therefore attract 10 per cent WDA.

The natural conclusion of these rules is that balancing allowances will not be available on the disposal of cars included in the pool. This, for those buying very expensive cars with higher emissions, is a very significant disadvantage, and probably represents quite a significant concern about the impact of the new rules.

For cars which are leased, the leasing restriction which triggers an add back of leasing costs will be replaced by a single restriction, based on emissions again instead of price. For vehicles leased from the commencement date of the new rules, the lease payments will be allowed in full for cars emitting no more than 160g/km and a simple 15% add back will apply to cars with emissions in excess of that amount.

The new rules apply to cars purchased or leased on or after 1 April 2009 for companies and 6 April 2009 for income tax businesses.

Strategy

Where a company owns cars on fleet the old rules are likely to be preferable for cars costing more than £12,000 whether or not the cars emit more or less than 160g/km as the second hand value is likely to be less than the tax written down value of the car in either pool. After two years’ WDA at 20 per cent, the residual value would be 64% of the original cost and at 10 per cent it would be 81%. Sale of the car at its third birthday would frequently realise between 40% and 55% of the original cost, so there will be a significant shortfall in allowances compared to the tax cost of the car over its life. So purchasing cars before the date of change will be beneficial to companies, and the more expensive the car the greater the benefit.

Where a company uses cars which are leased the new rules are more beneficial as the lease add back will drop significantly for cars costing more than £17,142 (at which point the current add back is 15%). So cars on lease should not be replaced until after the new rules come in, to benefit from the advantage of deducting more of the lease payments.

Sole traders and partnerships

Cars which are purchased by income tax businesses and where there is private use of the car will still be de-pooled in a single asset pool in order to isolate the private use proportion in calculating the capital allowances. So the loss of balancing allowance will not apply to income tax businesses in the same way as it applies to companies. Sole traders and partners will effectively benefit from the new rules by the abolition of the restriction on writing down allowance with no consequent loss of balancing allowances. The decision on timing of replacing the car is largely neutral, although there will be quite an acceleration of allowances for cars bought from 6 April 2009 onwards, meaning that some drivers will prefer to wait for the new rules.

Sole traders entering leasing arrangements will benefit from delaying their new lease car until after the new rules commence (on 6 April for income tax businesses) as the lease restriction based on cost would also apply to them. There is one small observation on leasing however; anecdotal reports indicate that the quotes for leasing business have already begun to escalate to reflect the loss of allowances to the leasing company under the new rules. Clearly businesses will need to weigh the advantages and disadvantages quite carefully once they have the financial details available.

***

Pre-budget report 2008 coverage sponsored by

Tags:

Replies (6)

Please login or register to join the discussion.

avatar
By User deleted
02nd Jun 2009 11:31

Reply to Marian queries
Dear Marian, Please don't fe offended but may I suggest that you book yourself on a course to get a good update on the new rules. while I appreciate the changes are confusing it does scare me to know that you may be doing tax return for clients and you don't even up a good understanding of the rules.

2008-09: The old rules re expensive cars with a value of £12,000 or more still apply with CA restricted to £3000 per annum restricted further by percentage of private use
2009-10 new rules apply from 1 April for companies and 6 April for individuals and partnerships. The Capital allowances are calculated to the CO2 emissions not the price of the cars.
New car leases rules apply from same dates as new CAR Capital Allowances rules. for 2008-09 the old rules still apply.

AIA can be claimed for all expenditure up to £50,000 (subject to transitional rules) except cars and Motor bikes in 2008-09.
No FYA in 2008-09 that is correct but watch out if asset acquired before 1 April/6 April 2008 for transitional rules.
This is only a brief summary it would take too long to explain it all now.
Can I refer you to some excellent articles on Accounting Web re new capital allowances rules (AIA/FYA and cars)
https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=189237&d=1032&h=1019&f=1026
https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=185334
https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=191757&d=1025&h=1058&f=1026&dateformat=%25o%20%25B%20%25Y

I hope these will help
good luck
M

Thanks (0)
avatar
By User deleted
02nd Jun 2009 10:01

2008 v 2009
Can someone clarify a couple of things for me. I am trying to separate the rules for 2008/09 from the rules going forward for 2009/10.

Cars - emmissions below 110g/km qualify for 100% ca, irrespective of personal use, THis is in effect from 2008/09 onwards so it applies to teh tax returns we are currently doing. I have come across the mention of 120g/km in some literature, but was this subsequently reduced to 110g/km for 2008/09 onwards?

Cars 110g/km - 160g/km get 20% ca. restricted to 3000 if personal use. This relates to both 2008/09 and 2009/10. So this relates to the tax returns we are currently doing.

Cars over 160g/km - only get 10%, but for leased cars there is some tweak on this - the number 15% jumps to mind. But for our 2008/09 tax returns this 15% thing has no impact, so for cars over 160g/km get 10% restricted to 3000 if personal use. I will need to find out about the 15% thing after coming to terms with 2008/09 rules (also, does this have any impact on the "should I buy or lease" question.)

The AIA and new 10% pool and reduction on WDA to 20% etc is all in place now, for our 2008/09 returns with hybrid rates etc, with FYA disappearing for 2008/09. But has the FYA of 40% come back again for 2009/10, for expenditure above 50k, and do integral features qualify for the 40% FYA or is it just general pool stuff?

Can someone clear up these issues for me please please please!!!
many thanks

I hope I'm not the only one with the problem of detangling the 2008/09 rules from the 2009/10 rules. I want to fill in tax returns without that nervous feeling of "i hope this is right!!!"

Thanks (0)
Rebecca Benneyworth profile image
By Rebecca Benneyworth
02nd Dec 2008 22:08

Game on Hugh
I'm Jaguar girl myself. Good old British make.

However, the new rules affect capital allowances from date of purchase,so your lady's Lambo (at emissions of more than 160g/km) will be at 10% if purchased after 6 April 2009 with of course a balancing allowance when and if sold (if she can part with it!!) assuming that she has private use. If bought through a company the simple difference is no balancing allowance as in a class pool and not a single asset pool.

Brrm brrrm.....

Thanks (0)
avatar
By hmlask
02nd Dec 2008 15:57

Fast girl.....
For sole traders and partnerships, what is the position for those with say a 30 April year end? One would normally expect expenditure in the year to 30 April 2009 to rank for Capital Alloances in 2009/10, so if the sole trader bought herself a £150k Lamborghini in July 2008 would she get relief under the new rules?

Thanks (0)
Rebecca Benneyworth profile image
By Rebecca Benneyworth
28th Nov 2008 13:26

Sorry to be slow
Yes, you are correct. Driving school "cars" are not treated as cars for capital allowances purposes. Whether this will be reviewed I'm not sure as HMRC are clearly going to look at Section 81 CAA - they have indicated that they will take Motorcycles out.

(By the way for other readers, the driving school rule is in the Capital Allowances Manual at CA 23510)

Thanks (0)
avatar
By User deleted
27th Nov 2008 16:41

new capital allowances for cars regime
Dear Rebecca,

Can we assume that driving school cars, fitted with dual controls will not be affected by new measures but will qualify for AIA and/or be included in main pool with WDA 20% (driving school car is very unlikely to cost more than £50K, I think)

Technical note has still not been published or at least not where it is easily accessible.

Please can you confirm that I am correct in assumption.

many thanks
Michele

Thanks (0)