Cars are treated as capital assets for tax purposes and tax relief is given in the form of 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. Instead a proportion of the cost is given as a deduction each year until the full original cost has been relieved- called a writing down allowance (WDA) - which is calculated on a reducing balance basis.
Cars with emissions below 160g/km attract a WDA of 20% a year and cars with emissions over 160g/km 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.
There are lots of things to consider when buying a new vehicle such as the benefit in kind implications, available capital allowances, income tax upshots and the finance of the purchase, but your local TaxAssist Accountant can assist you with your decision.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.