For cars purchased prior to 6 April 2009 (1 April 2009 for companies), expenditure was required to be allocated to a separate pool for each vehicle costing more than £12,000. These were known as “expensive” car pools. Annual writing down allowances were limited to £3,000 per annum for each car until its tax value fell below £12,000, at which point allowances were calculated at 25% per annum on a reducing balance basis. The rate of allowances reduced to 20% from 6 April 2008 (1 April 2008 for companies) and further still to 18% from April 2012. Where an “expensive” car was subsequently sold or otherwise disposed of, a balancing allowance usually arose due to its sales value being less than its tax written down value (“TWDV”).
Some businesses will still own pre-April 2009 cars. With effect from April 2014 these “expensive” car pools are to be transferred to the main plant & machinery pool. This means that if the car is sold, relief will no longer be obtained in the year of sale. Instead the remaining TWDV (net of the sale proceeds) will continue to be written down at 18% until its tax value is effectively written down to a negligible sum. This could take place over a number of years after the sale.
There is therefore an opportunity for businesses to consider replacing their “expensive” cars with newer models before April 2014 and banking the difference (between the old car’s TWDV and sale price) as a tax deduction in the year of sale. Rules apply to prevent connected parties from acting together to obtain a tax advantage where the car is still used in the business after the sale, or where the tax advantage is the only or main reason for disposing of the car.
Where a car is purchased after 6 April 2013 (or 1 April for companies) the rate at which the cost attracts capital allowances is changing. From April 2009, allowances for cars purchased after this date are calculated with reference to CO₂ emissions. Cars with emissions exceeding a pre-determined limit are added to the special rate pool and allowances are given at 8% per annum. Below the limit and the car is added to the main pool and 18% allowances applied. Until April 2013, the limit was 160g/km. This reduces to 130g/km from April 2013. Where emissions are 95g/km or less, allowances will be given at 100%. These measures form part of the government’s aim to match EU emissions targets for 2020.