Cars are treated as capital assets for tax purposes and tax relief is given in the form of annual capital allowances, rather than a deduction for the cost of the vehicle. This means that the cost of buying the vehicle is not deducted when calculating your profit or loss for the year, but instead a proportion of the cost is given as a deduction each year until the vehicle is sold or the full original cost has been deducted.
Cars with emissions below 160g/km attract a deduction of 20 percent of the cost on a reducing scale each year. Cars with emissions over 160g/km are restricted to an annual writing down allowance of only 10%.
Your friend may be referring to the special allowance available for low-emission vehicles. Low-emission cars first registered on or after 16 April 2002 attract an allowance for tax purposes of 100% of the cost of the vehicle. In order to qualify, the emission level must not exceed 110 g/km for acquisitions made on or after 6 April 2009 (1 April 2009 for limited companies). For purchases made from April 2002 to April 2008, the maximum emission level for a qualifying vehicle was 120 g/km.
To find out if a vehicle will qualify for this enhanced capital allowance, contact the car manufacturer or dealership to check the CO2 emissions. Alternatively, your local TaxAssist Accountant will be able to provide you with a list of current low emission cars which meet the criteria for the scheme.