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Act now to get the best deal!

The effect of capital allowances on the true cost of a business car purchase can be underestimated. But as the government's drive towards a greener Britain is gradually changing the fleet landscape, businesses should take note when the government lowers the capital allowance thresholds as this restricts the tax relief available.

The impending changes to the capital allowances regime should not therefore be allowed to slip under the radar, as they could have a significant impact on the tax relief available for many premium cars, as outlined below.

From 1 April 2018 the thresholds will fall, as shown below.


Date First year allowance Main pool Special pool
  CO₂
(g/km)
% CO₂
(g/km)
% CO₂
(g/km)
%
To 31 March 75 and below 100% From 76 to 130 18% Above 130 8%
From 1 April 50 and below 100% From 51 to 110 18% Above 110 8%

Volvo has already started its journey towards an ultra-low emission future, by announcing that from 2019 every new model it launches will have an electric motor, putting electrification at the core of its strategy. For its range of outstanding plug-in hybrid cars therefore, such as the V90 and S90 T8 Twin Engine models, which emit less than 50 g/km, these changes will have no effect, and these cars will continue to qualify for a 100% first year allowances (FYA).

But for those businesses looking to buy premium diesels for their high mileage drivers, the reduction in the tax relief available from April 2018 could be crucial, so our advice is don’t wait, act now, because delaying your purchase could have a marked impact on your cash flow.

Over a three year period of ownership, the following examples highlight the reduction in the writing down allowance (WDA) and the corporation tax relief (CTR) available for two cars; a Volvo V90 2.0 D4 Inscription Geartronic with CO₂ emissions of 119 g/km bought for £39,500, and a Volvo S90 2.0 D4 Inscription Geartronic with CO₂ emissions of 129 g/km bought for £41,500.

V90 D4 Inscription Geartronic
Writing down allowance Reduced WDA Reduced CTR Reduced CTR per month
Main Special
£17,721 £8,742 £8,979 £1,665 £46.25
S90 D4 Inscription Geartronic
Writing down allowance Reduced WDA Reduced CTR Reduced CTR per month
Main Special
£18,618 £9,184 £9,434 £1,748 £48.55

And the impact will be similar for those companies that lease, rather than buy premium diesels. From April 2018, not only will rentals increase, because leasing companies can’t claim as much tax relief on the cars they buy, but cars with emissions above 110 g/km will also be subject to the lease rental restriction, meaning businesses will only be able to claim tax relief on 85% of the rental.

As the government tries to mitigate the impact of tax changes, it announced the change to the capital allowance thresholds well in advance, giving businesses the opportunity to consider the timing of business car decisions and to take advantage of existing rules before they change. So, whether you intend to lease or buy your next business car, we can confidently predict that you’ll save money if you do so before April.

Published 19 January 2018