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Companies are able to apply for Capital Allowances on cars that have been purchased specifically for business use.
Companies have the opportunity to save on their taxes by capitalizing a vehicle they've purchased for business use. Through Capital Allowances, companies can subtract a portion of their car’s purchase cost from gross profits - reducing overall taxation and increasing return on investment! Unfortunately, cars are not eligible for Annual Investment allowance but businesses may qualify under Writing Down allowances – so it pays off to ask your accountant about tax savings options when you acquire motor vehicles.
Businesses can benefit from a substantial financial boost through the generous R&D Capital Allowance. All expenses connected to fixed assets for research and development are eligible, allowing businesses of any size access to an oxygenated injection on their balance sheet. Retrospective claims can also be made up two years after expenditure is incurred – something that's simply not available with Annual Investment Allowances!
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 can reap the benefits of the Annual Investment Allowance and Writing Down Allowances on lorries, trucks and vans.
Rules around Capital Allowances and cars vary depending on the business type. For limited companies, the First-Year Allowance (FYA) rate is available from 1st April and they are entitled to use the WDA for deducting a portion of the car’s value from their gross profits.
For partners and sole traders, the 6th April is applicable for the main and special rates of Capital Allowance when purchasing a car for business use. The CO2 emissions, as well as the date it was purchased, will determine the availability of the Capital Allowance which will also determine the relevant rate.
Companies are not eligible to receive an Annual Investment Allowance (AIA), but they can still benefit from simplified mileage expenses as long as no other claims have been made. Taking into account all of these factors will ensure businesses get maximum benefit from any capital allowances related to cars.
First-year allowances (FYAs) are an incentive scheme designed by the government to encourage businesses to invest in greener cars. Under the scheme, companies can claim 100% of the cost of a car – whether brand new or unused – against their profits in that year, provided that its CO2 emissions do not exceed 50kg/km. This also applies to vans with zero emissions if they are purchased before 1st April 2021. It’s important to keep in mind that FYAs don’t cover second-hand cars and only apply when the vehicle is brand new and unused.
Aside from cars and vans, some other vehicles may also qualify for first-year allowances, such as motorcycles which emit less than 75g/km of CO2 and have an engine size of no more than 150cc. These must also be bought within a specific period (1st April 2018 until 1st April 2021), just like cars and vans. On top of this, electric bikes with an approved energy consumption below 15 kWh per 100 km over a given driving cycle may be eligible too, but again there's specific criteria that these need to meet.
The good news for companies is that FYAs are available regardless of whether the car is bought outright or leased through a finance agreement, although it's worth noting that any leasing costs associated with a car cannot be claimed as part of the allowance. Lastly, those who receive tax credits or universal credit will not be able to qualify for FYAs; neither will private individuals unless they use their car solely for business purposes.
Main rate allowances fit into the picture in that they provide larger deductions on higher value assets, such as cars. This means that companies are able to benefit from a greater deduction when claiming Capital Allowances and Writing Down Allowance.
Main rate allowances can be applied on cars with a purchase price of over £12,000, offering businesses an even larger reduction in their taxable profits. For those who bought multiple cars within the same tax year, they are eligible for up to 40% of the total cost of all the cars. The main rate allowance is typically limited to one calendar year but businesses have the option to spread their reliefs across multiple years if needed.
Additionally, main rate allowance is also applicable on other types of assets such as plant and machinery as well as certain buildings and structures.
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%.
Are you wondering about the process for making an R&D capital allowances claim? Seeking answers and guidance to help your organisation make informed decisions on tax credits?
Look no further than Myriad Associates! Our team of seasoned professionals leverage their expertise in research & development regulations, helping you get the most from these lucrative opportunities.
Contact us by email or phone (0207 118 6045) today to gain access to invaluable resources and learn how we can assist with filing a successful claim.