In this article and future articles, I aim to give you a brief overview of taxation of company cars.
In this article will deal with tax from the employer’s point of view.
I will provide details for a business providing a car to an employee (who may be a owner/director). Different rules apply to cars used by sole traders and partners.
I will use the 2012/13 tax rates. Significant changes will take place in future tax years and I will highlight this.
Low emission vehicles
A business buying a new car (outright or on hire purchase) with CO2/km emissions of 110g or less can set the entire purchase amount against its profit. When sold, the proceeds may be non-taxable if there are sufficient assets (including cars) in the general pool (18%).
From April, 2013 the threshold will reduce to 95g CO2/km. We would advise that businesses act before it is too late. This link will give you list of these vehicles
Cars with higher emissions
The tax allowances for cars with higher emissions are much less generous. Cars with CO2 emissions between 111g and160g CO2/km will be pooled with other assets and receive a writing down allowance of 18% per annum. Over 3 years, the business will receive 45% of the cars cost back in tax relief. Typically, a car loses 65-70% of its value in this period. This means that you will probably never get tax relief for this 20-25%.
From April, 2013 this CO2/km threshold will be reduced to 130g CO2/km. If you have a car in mind with emissions between 131g and 160g CO2/km, we suggest you act quickly.
Cars with CO2 emissions over 160g CO2/km go into their own pool and receive a writing down allowance of 8% per annum. Over 3 years, the business will receive 22% of the cars cost back in tax relief. Typically, a car loses 65-70% of its value in this period. This means that you will probably never get tax relief for this 43-48%. Shocking, isn’t it! These rules will apply for cars with emissions over 130g CO2/km with effect from April, 2013.
In my next article, I will outline the rules for leasing.
I hope you found this article informative. If you need further information including the double benefit of low emission vehicles, please do not hesitate to contact me.