Company Car Tax Changes

Employers
The changes to capital allowances on cars have already come into effect for cars purchased after 31 March 2009 by companies, and after 5 April 2009 by unincorporated businesses. The main changes are that cars with CO2 emissions exceeding 160g/km are allocated to the special rate capital allowance pool, where the cost receives tax relief at only 10% per year. Other cars go into the general pool and receive tax relief at 20% per year, unless the car has very low emissions of 110g/km or less when it can qualify for a 100% first year allowance.

The disadvantage of pooling the expenditure on cars is that when a car is sold, the disposal proceeds are deducted from any other costs in the pool, but any unrelieved cost of the car remains in the pool to be gradually written-off at 20% or 10% per year. Cars owned at the April start date are treated separately, so the unrelieved cost is given as an allowance when the car is sold. The Government is introducing anti-avoidance rules to prevent businesses taking advantage of the old rules for cars by selling the vehicles at less than market value, or by artificially closing down the company to claim the allowances.

Employees
The taxable benefit for having use of a company car is to increase again from 6 April 2011. The scale of CO2 emissions that sets the taxable amount of the vehicle's list price will start at 15% for cars with CO2 emissions of 121-129g/km. Although cars with CO2 emissions of no more than 120g/km will continue to produce a taxable benefit of 10% of their list price. The taxable benefit of driving an electric car is 9% of the list price. The list price that is taken into account is currently capped at £80,000, but this cap will be removed from 6 April 2011. Various discounts for alternatively fuelled cars will also be removed.

Car Scrappage Scheme
If you have a car which is more than 10 years old you will be able scrap it and get £2,000 off the price of a brand new car, but only for a limited period until March 2010. You will have to show you have been the registered keeper of the vehicle for the previous 12 months before ordering the new car.