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Article Index
Budget 2009 Commentary
Temporary return of first year allowances
Another year to carry losses back
Tipping the cashflow scales
Carbon-based company cars
Further obligations for internal company accountants
Preferring to be part of a group?
A simple option for VAT on property
2010 - a big year for football and VAT
Connected companies' loans
Developments on the green horizon
Foreign denominated losses
Gambling with the rules
Rates and limits
HMRC becomes more powerful

Budget 2009 commentary courtesy of Grant ThorntonBudget Comment 2009

Carbon-based company cars

Capital allowances

Budget 2008 announced the abolition of the 'expensive cars' capital allowance rules. HM Revenue & Customs (HMRC) has issued draft legislation to be included within the Finance Bill 2009 in respect of business expenditure on company cars. The introduction of this change has been confirmed in Budget 2009. The legislation will be effective from 1 April 2009 and reflects the Government's continued commitment to reducing carbon emissions as the new provisions are based on the CO2 emissions of the car.

From 1 April 2009 for companies or 6 April 2009 for unincorporated businesses, the capital allowances that can be claimed on cars will be based on the emissions of the vehicles. From these dates, written down allowances (WDAs) of 10% and 20% for expenditure incurred on cars with CO2 emission levels over 160g/km and over 110g/km respectively.

There will be a single 10% special rate pool which will incorporate all higher emission cars together with long life assets and integral features. It is important to note that no balancing allowances are given against this pool therefore allowances will continue to be given long after the car (or other asset) has been sold or scrapped.

It is proposed that cars generating a CO2 output of less than 110g/km will continue to be entitled to a 100% allowance.

There will be a five year transitional period in respect of expensive cars (ie cars costing more than £12,000) purchased before April 2009. For non-expensive cars contained within the general pool, expenditure incurred before 1/6 April 2009 will continue to be entitled to 20% WDAs under the old regime.

For new leases of hire cars with CO2 emissions of more than 160g/km there will be a restriction of 15% of the deduction taken against taxable profits in respect of the rental payment actually paid. The restriction will not apply if the car:

  • is registered before 1 March 2001
  • has low CO2 emissions (less than 160kg/km)
  • is electrically propelled
  • is a qualifying hire car.

In addition, no restriction will be applied if the car is hired for a period of 45 days or less, and there are no linked periods (essentially a subsequent hire within 14 days of the first), and effectively there will be no more than one restriction in a chain of leases.

Existing leases will continue to be restricted in line with current rules until the end of the lease.

The revised legislation includes provisions in respect of companies which have a qualifying activity consisting of, or including making cars available to other persons. Essentially any possible balancing allowance is restricted following a trade being wound up in order to create a balancing allowance by a company, if, within six months the qualifying activity of making cars available to other persons is carried on in a company within the loss relief group.

Under the new rules, expenditure on a car that is used for both business and non business purposes continues to be dealt with in a single pool but there are provisions to prevent a person creating a balancing allowance by selling the car to a connected person for a nominal amount.

Motorcycles will be excluded from the capital allowance definition of a car and any expenditure incurred on these will be will qualify as standard plant and machinery expenditure and so will qualify for the Annual Investment Allowance (AIA), with any balance of expenditure falling to be allocated to the main plant and machinery pool, attracting WDAs at 20%.

Employee benefit on cars

Calculation of the taxable benefit on a car provided by an employer is based on the CO2 emissions of the car and the list price. Depending on the level of the CO2 emissions a percentage will be applied to the list price to arrive at the taxable benefit. The percentage is also used to calculate any taxable benefit on fuel provided by the employer for private use. In addition, the same taxable amount is used to calculate the employer's Class 1A National Insurance contributions.

This is set to continue, however, a number of changes will be made with effect from April 2011:

  • Currently there is a cap of £80,000 in respect of the list price on which the relevant percentage is applied to. This cap will be abolished from April 2011
  • The lower threshold for CO2 emissions for 2010/2011 will be reduced to 125g/km (135 g/km in 2009/10 and 130g/km in 2010/11)
  • The reductions which currently exist for electric/petrol hybrid cars, cars propelled by bi-fuels, road fuel gas and bioethanol will be abolished.

In addition, the discount given for Euro IV standard diesel cars registered before 1 January 2006 will be abolished - essentially the carbon efficiencies achieved by these cars will be reflected within their CO2 emission figure and the resulting relevant percentage