Our website uses cookies to enhance the visitor experience (what's a cookieCookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.). Are you happy for us to use cookies during your visits?
Please note: continuing without making a choice equates to giving us your consent, which you can withdraw at any time via our cookies policy page.

New Capital Allowances Rules for Cars

Newsletter issue - January 08.

Cars that cost over £12,000 get special treatment for capital allowances. The capital allowance for each car must be worked out individually as there is a cap of £3,000 per car that can be claimed per year. This is different to other assets such as machines, where the costs are added together in a pool, the capital allowance is then calculated on the total value of the assets in the pool.

The individual capital allowance calculation per car is fiddly but it does have advantages, as when you sell or scrap the car you get immediate tax relief for the remaining cost of the vehicle. Assets sold out of the pool do not get full tax relief on sale as only the sales proceeds are taken out of the pool which may be less than the cost of the asset which has yet to be given tax relief through capital allowances.

From April 2008 the distinction for cars costing over £12,000 is likely to be swept away. The Government has proposed that cars will be categorised on the basis of their CO2 emissions. Three or more pools may be established for cars that have low, medium or high CO2 emissions. Low emissions cars (up to 120g/ km) will qualify for a 100% first year allowance, as now. Those in the middle band are likely to qualify for a 20% capital allowance per year, and the most polluting cars will only qualify for a 10% annual allowance. This will lengthen the time over which tax relief for the full cost of the cars will be given. Also the ability to get immediate tax relief for the balance of the cost on the sale of a car will also be lost.

The new rules for capital allowances on cars have not been confirmed yet. They may only apply to cars purchased on or after 1 or 6 April 2008, as reorganising the existing cars into the new pools would be very difficult, although if that was the case it may be beneficial to sell the car prior to April 2008 to ensure any balancing allowances are obtained. Alternatively, if you are planning to buy a new car in 2008, you should think about the timing, as a purchase from April onwards could mean a long wait to get full tax relief for the cost. In summary, if you are thinking of buying or selling cars there may well be an advantage in doing so before April 2008 but keep in touch with us for up to date information if you are considering this.

  • Auto enrolment icon

    Auto Enrolment

    Workplace pensions rules are changing.
    Be prepared for auto enrolment, see how we
    can help and read up on our guidance notes.


  • Cloud accounting icon

    Cloud Accounting

    With our online bookkeeping packages, our support
    services are only a click away.
    Discover cloud accountancy solutions to bring your finances up to date.

  • Pay less tax icon

    Pay Less Tax

    Our experienced tax advisors can help you
    make the most of your options to reduce
    your tax bills.


  • Make more profit icon

    Make More Profit

    From business plans to management accounts,
    our business services will ensure you are in
    control of your business finances.


  • Source finance icon

    Source Finance

    Our experienced partners can guide you
    in getting the finance you need to make
    your business grow. Read our guides or
    contact us for a free consultation.

  • Outsource your payroll icon

    Outsource Your Payroll

    Let us handle payroll compliance for your
    business. We can deal with HMRC on your
    behalf, and take the stress out of RTI.