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Business car tax accounting changes

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Company directors: taking advice on new tax rules

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17 February 2011

From April, the government has significantly changed the writing down allowances for corporation tax purposes.

In addition, the expensive car leasing disallowance has also been changed.

These tax changes were introduced on 01 April 2009 for companies; and take effect for partnerships and sole traders from 06 April 2009.

Calculating the corporation tax writing down allowance on business cars owned by a company changes to a CO2 emissions basis. While the existing ‘half the excess’ rule for expensive cars over £12,000 on contract hire will cease for all new business car expenditure.

There will be three categories for calculating writing down allowances.

Business cars with emissions up to 110g/km

Cars in this category receive a 100% writing down allowance. This allowance continues until 31 March 2013.

Business cars with emissions 111g/km to 160g/km

Business cars in this category can be written down at 20% per annum on a reducing balance basis. There is no special pool and no balancing charge on the sale of the vehicle.

Business cars with emissions of 161g/km and above

Business cars in this category go in a special pool where they will be written down at 10% per annum on a reducing balance basis. There is no balancing charge on the sale of the business car.

Expensive car leasing disallowance for contract hire

The existing expensive car leasing disallowance – the ‘half the excess’ rule for all business cars on contract hire costing over £12,000 – is replaced by two CO2 emission bands.

Business cars with emissions up to 160g/km
For business cars in this category there is no disallowance. The full cost of the net monthly lease can be placed against the P&L account.

Business cars with emissions over 160g/km
For business cars in this category there is a 15% restriction on the net monthly lease.

While these accounting changes commence at the beginning of April, they still need to be fully ratified by the government. It is anticipated this will happen on 22 April – Budget Day.

Business cars already in operation can continue to operate them under existing accounting rules for a period of five years.

Further information

For additional comment on the new expensive car leasing disallowance, read the Editor’s Blog Business car tax accounting changes

Editor’s note, May 09, 2009: Since this story was published there has been an error spotted relating to the amount of write down allowed for business cars with emissions 111g/km-160g/km and 161g/km and above. There is no cap on the amount of the yearly write down as long as the write down is either 20% or 10%, depending on the band. I had suggested a cap of £3000 per annum. This has now been removed. I am grateful to reader Julian Hall from Manchester Audi for pointing this out – Ralph Morton, editor.
Corporation tax switches to CO2 emissions basis

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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