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Companies are able to apply for Capital Allowances on cars that have been purchased specifically for business use. This means that part of the car’s value can be deducted from the company’s gross profits. Unfortunately, cars are not eligible for the Annual Investment Allowance but businesses can use the Writing Down Allowance to calculate what they can claim for.
R&D Capital Allowances offer businesses a cash injection by allowing them to write down all of their R&D expenditure on fixed assets. This is slightly different to Annual Investment Allowance in that RDA is unlimited, meaning the more your business pays out on fixed assets pertaining to R&D, the more money it will get. The good news too is that a retrospective claim can be made for R&D Capital Allowances up to two years later.
By giving 100% tax relief on just about all capital R&D expenditure, Research and Development Capital Allowances can substantially cut the Corporation Tax your business owes. How much this reduction will be is dependent on your organisation’s cost of capital. Based on a cost of capital of 5% across a 25-year period, RDA represents a 28% saving.
For capital allowances, a car must be:
Businesses are able to receive Annual Investment Allowance (AIA) on vehicles listed above because they’re not classed as cars. Lorries, trucks and vans are typically classed as main pool assets for the purposes of Capital Allowances therefore an 18% Writing Down Allowance is applicable. Furthermore, until the 31st March 2020, vans giving off zero CO2 could be eligible for 100% of the first-year allowance, as long as the government’s Plug-In Van Grant hasn’t already been claimed.
The WDA is applicable to expenditure over and above the AIA limit.
Under the Capital Allowances Act 2001 section 38B, the cost of a car is not eligible for the AIA. However, if the business is purchasing a car for business use, it can utilise the WDA for deducting a portion of the car’s value from the company’s gross profits. Providing no other claims have been made (including the Capital Allowance), you can receive simplified mileage expenses on business vehicles as long as you’re a sole trader or a partner.
The car’s CO2 emissions, as well as the date it was purchased, will determine the availability of the Capital Allowance as well as the relevant rate. For limited companies, the main and special rates are applicable from 1st April. For partners and sole traders it’s the 6th April.
For all organisations, the First-Year Allowance (FYA) rate is applicable from the 1st of April.
First-year allowances were put in place by the government to help persuade businesses to invest in greener cars. A company can offset the full cost of a car against its profits in the year the car was purchased as long as all other criteria are met.
FYAs of 100% are offered on new and unused cars where CO2 emissions are 50kg/km or under. This is for cars purchased after 1st April 2018 and before 1st April 2021. This relief also applies to vans with zero emissions as long as they are brand new and the purchase is completed before 1st April 2021.
It’s worth remembering however that FYAs are not applicable for second-hand cars - the offer is only in respect of brand new, unused ones.
Unlike the First-year allowances, both second-hand and brand new cars are eligible for the main rate WDA, providing the car is being purchased solely for business use. Cars will come under the WDA pool main rate if purchased after the 1st of April 2015 and previous to the 1st of April 2018 with CO2 emissions of under 130g/km.
If the purchase of the car took place after 1st April 2018 but before 1st April 2021 - and has CO2 emissions of 110g/km or under - it will come under the main rate pool WDA. Money spent under the main rate pool has an applicable rate of WDA of 18%.
If the CO2 emissions of a car used solely for business are too high for consideration within the allowance pool main rate, it can still qualify for a lesser WDA.
The special 8% WDA rate is applicable in these circumstances:
If a company’s business car is driven for personal as well as business use, it must be allotted to a single asset pool. The proportion of time that the car is used for personal journeys will be taken into consideration, with the allowance reduced to reflect this. Depending on the car’s CO2 emissions, the allowances will be calculated at a rate of either 18% or 8%.
Do have a question or concern about any aspect of R&D Capital Allowances? Perhaps you would like to make a claim but don’t know where to start?
Myriad Associates is made up a team of accountants and tax specialists who deal entirely with R&D tax relief claims week in, week out. We can help you avoid the pitfalls, maximise your claim and have the very best chance of success. Our website also offers a wealth of information about R&D Tax Credits and how to claim, or please do call us on 0207 118 6045. Alternatively visit our contact page and we’ll get back to you.