posted 6 years ago

New capital allowance rules for cars 2013-14*

Capital allowances on low-emission vehicles are set to be changed for the coming tax year.

Capital allowances on low-emission vehicles are set to be changed for the coming tax year, so should business owners move now to take advantage of the current scheme or use a leasing package for their car or cars?

For the last few years businesses have been able to claim 100% of the purchase price of cars that emit under 110g of CO2 per kilometre driven against their taxable profits, meaning certain low-emission cars could keep part of your hard-earned profits away from the Exchequer. This will change to cars emitting under 94g/km from April 1st. Now whilst this is attractive at first glance, it is only for an outright purchase and that means you are removing cash from your business that could be spent on other things.

There are currently hundreds of different derivatives and a number of new models which qualify for this subsidy, most of which are small hatchbacks. A few larger premium brand cars just make the cut including the new BMW 320D Efficient Dynamics, Mercedes C-Class Coupe C220 CDI Blueefficiency SE Coupe and saloons, the Volvo V40 D2 hatchback and the Lexus CT200 Hybrid. Premium hatches include the Audi A3 1.6 TDI, the VW Golf 1.6TDI, most diesel MINIs and pretty much every small to medium hatchback from the likes of Ford, Vauxhall, VW and Seat. There are also hybrids like the Toyota Prius and Lexus CT200 Hybrids, plus full electric cars like the234 MPG ‘equivalent’ Chevrolet Volt. This pool of choice will reduce dramatically once the 94g limit comes in, and be made up mostly of small hatchbacks, with notable exceptions such as the Volvo V40 and Lexus CT200 and the aforementioned Volt.

You can find a full list of car MPG’s and emissions here for every new car currently available in the UK.

Another benefit of these low-emission cars is improved fuel consumption. The easiest way to reduce emissions is to use less fuel, with the BMW 320D coming in at a surprising 68.9 miles per gallon. As fuel is the second largest motoring cost behind buying a car, business owners should carefully consider performance versus value. No brownie points from the Revenue for Porsche drivers this year!

You will still have to pay company car tax on your purchase, but as the eligible vehicles are low-emissions, you and /or your employees will be at a maximum 15% of list price for the 2013-4 tax year. You can calculate your exact liability on the HMRC site.

If you are London-based and drive within the congestion charge zone, all the cars under 99g of CO2/km will also be exempt from this fee (for now!) and would save you £10 per day too.

Leasing and asset based finance (hire purchase) as opposed to outright purchasing, are still the most popular choices, and with the capital allowance loophole set to be closed in April, will be even more prevalent. Contract hire and leasing rates tend to be the lowest cost of funding a vehicle, and are a great way to preserve cash within the business. A typical lease requires just 3 payments up front, although your business will have to have a sound credit rating to qualify. Otherwise you’ll need a bigger deposit to source the finance for your purchase.

Firms can reclaim 50% of the VAT on lease payments on most occasions, and 100% if the vehicle is solely for business use, which is rarely the case. You can also claim the VAT on maintenance costs too.

Our top 5 choices:

1. BMW 320 D Efficient Dynamics - This latest BMW model looks far better than its predecessor, drives like a dream and is as efficient as can be. From £28,615

2. Mercedes-Benz C-Class C220 CDI BLUEEFFICIENCY Coupe - The new C-Class Coupe styling is fantastic, and it has a powerful 170bhp engine. Recently launched, there aren’t millions on the road so retains an air of exclusivity

3. Lexus CT 200 Hybrid - Congestion charge exempt, quite as a mouse with understated styling and ultra low emissions mean low tax, high mpg and decent residual values. From £21,995

4. Chevrolet Volt - Just plug it in and start saving. For urbanites this is a great choice to stand out and save money too. £29,995 after £5000 Government Grant.

5. The MINI Cooper D - 74 miles per gallon, nippy around town and still the coolest hatch around. List prices from £16,180

More information on emissions and MPGs is available at the website.

HMRC website

*Be sure to take professional advice that is relevant to your circumstances

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