Capital Allowances - cars

s0ck

s0ck

s0ck

Soldato
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18 Oct 2002
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I've been using an umbrella company for my contractor work but have recently been looking at getting a nicer car for tramping around in. Based on the info below from here, is it worth becoming a LTD company myself?

  • expenditure on cars with CO2 emissions over 160 grams per kilometre (g/km) driven will be dealt with in the special-rate pool and will attract writing-down allowances at 10 per cent

  • expenditure on cars with CO2 emissions of 160g/km driven or less will be dealt with in the main pool and will attract writing-down allowances at 20 per cent
  • Note that if the car has CO2 emissions below 110g/km, it qualifies for 100 per cent first-year allowance.

If I'm understanding this right, I can reclaim 10 or 20% of the list price of the vehicle assuming it meets the emissions criteria?
The last one confuses me though... if it's as low as 110g/km, I can write off the total price against tax?

What about depreciation? :s
 
Depreciation doesn't affect taxable profit.

The company can claim the capital allowances which reduces the corporation tax but if you're also using the car for private use you get a benefit in kind, which is subject to income tax.

Yes, if it qualifies for 100% FYA then the total cost of the car is deducted as a capital allowance. It's the incentive for getting a car with low emissions.

You might find it's not worth the company buying the car. You'll need to do some calculations and decide.
 
I just realised what FYA means.
Right, so, if I'm only required to pay, for example, £2,000 tax in the year one, year two and onwards I would not be eligible to claim for the rest of the value of the car?
Conversely, if I was required to pay £20,000 tax in year one (assuming a car value of approx £17,000 list) I could write off 17k straight away (based on <110g/km)?

Thanks for any pointers on this, I'm a bit confused :)
 
The benefit in kind on company cars is massive. You can't charge that out to the LTD company either as it's a personal tax.

Guv said:
Yes, if it qualifies for 100% FYA then the total cost of the car is deducted as a capital allowance. It's the incentive for getting a car with low emissions.
Click to expand...

Are you sure you don't mean Annual Investment Allowance? If so, it doesn't apply to cars. The 100% FYA only applies to cars of 110 grams per kilometre(gm/km) or less and brand new.
 
I don't know what I mean m8, this is the problem; I'm a techie not a finance bod :p
My thinking was this: For someone on around 50k/pa and with 100% FYA on the 110g/km above, it seems like you could get a something like a Golf Bluemotion diesel for virtually nothing. I'm sure I must have got this wrong though hence these questions...
 
s0ck said:
I don't know what I mean m8, this is the problem; I'm a techie not a finance bod :p
My thinking was this: For someone on around 50k/pa and with 100% FYA on the 110g/km above, it seems like you could get a something like a Golf Bluemotion diesel for virtually nothing. I'm sure I must have got this wrong though hence these questions...
Click to expand...

If you can get a car for 110g/km you'll receive 100% FYA tax benefit. I have no idea how much it costs but if, for example, it costs £20,000 you'd have a capital allowance of £20,000 to take off you're schedule DI profits. After that year you wouldn't receive any allowance because the pool for the car would be zero.

However, looking at it from an income tax point of view, you'd have the car as a benefit in kind. As the car has < 120g/km you'd be in the 13% band (diesel) for car benefit rules. Use this calculator to work out the income tax liability as there are too many variables to list here. It's all dependant on emissions, list price and fuel type now afaik. The engine size used to apply before they switched to green taxes but I'd input it anyway.
 
Kemik said:
Are you sure you don't mean Annual Investment Allowance? If so, it doesn't apply to cars. The 100% FYA only applies to cars of 110 grams per kilometre(gm/km) or less and brand new.
Click to expand...

Yep I'm sure.. I mean FYA.
I did say if it qualifies.. and to qualify the co2 emissions must be less than 110g/km.

Basically, if you buy a car for £20,000, with less than 110g/km, your company will save £4,200 (£20,000 x 21%) in corporation tax.

Assuming £20,000 is the total price and you use the car privately your benefit in kind will be £20,000 x 13% = £2,600. If you're a higher rate tax payer you'll pay tax at 40% on £2,600, so the tax will be £1,040. This applies to this tax year, next tax year may be different.

If the company also pays for all your private fuel you'll have a fuel benefit of £2,197 (£16,900 x 13%). Tax at 40% is £879.

So you could end up paying almost £2k a year in income tax for the car and fuel and the company will save a one off amount of £4,200 + (whatever the expense of your fuel is x 21%).

Those are the main points to consider anyway, there are a couple of other things but not as important and won't impact the tax as much.
 
s0ck said:
Where did 21% come from? What happened to total cost deducted?
Click to expand...

21% is the corporation tax rate.

Example..
If your taxable profits are £50,000 you'd pay £10,500 corp tax (50k x 21%)

If you buy the car, your taxable profits are 50,000 - 20,000 = 30,000 x 21% = £6,300 corp tax

The difference is £4,200
 
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