In terms of tax incentives on low emission vehicles, there is currently a 100% first-year allowance (FYA) available to all businesses purchasing ultra-low emission vehicles. This is available for purchases of new, unused vehicles emitting CO2 of 75g/km or less. Previously, the FYA was available to cars emitting CO2 of 95g/km or less but this limit was reduced from 1 April 2015.
Initially this incentive was due to come to an end in April 2018 but the Government then announced that they were intending to extend the 100% FYA to cover expenditure incurred before 1 April 2021. However, the qualifying threshold for the FYA will be reduced to 50g/km from 1 April 2018. These measures have since been confirmed.
The FYA means any business will effectively get full tax relief on the cost of the car in the same year that it is purchased. For a higher rate taxpayer, a saving of 42% could be made against the initial cost of the car, with this reducing to 20% for a company.
If expenditure on a car does not receive the FYA then a writing down allowance of 18% per annum can be claimed on cars with CO2 emissions of up to 130g/km and at 8% per annum for cars emitting CO2 of over 130g/km. This threshold will also be reduced from 1 April 2018 to cars emitting CO2 of 110g/km.
Where a business leases a vehicle rather than purchasing it outright, there is currently a restriction to the lease payments that are available for tax relief where the CO2 emissions exceed 130g/km. The amount disallowed for tax purposes is a flat 15% of the lease costs. The threshold for this restriction will also reduce to 110g/km from April 2018.
The measures are intended to change buying habits and encourage businesses to use ‘greener’ vehicles. Manufacturers are developing new low emission models all the time and there are many more options available which meet these criteria than there used to be.
In addition to the beneficial tax reliefs available against the purchase costs, tax benefits chargeable on employees provided with ‘green cars’ are also generally lower.
If you would like any advice on the tax implications of purchasing a vehicle for use in your business, then please do get in touch.