Capital allowances on 'expensive cars'

In the 2008 Budget the Chancellor announced that the capital allowances for cars (those costing over £12,000) would be based on an 'environmentally based pooling system'. The distinction between cars costing more or less than £12,000 will end with the commencement of the new rules, under which, the tax allowances will be linked to CO2 emissions. The new rules will take effect on 1 April 2009 for companies and 6 April 2009 for unincorporated businesses. Under the new rules qualifying expenditure incurred after the effective dates will be allocated to the one of the two general plant and machinery pools. If the car's CO2 emissions are over 160g/km then it will be allocated to the special rate pool and will only attract a 10 percent writing down allowance. Cars with emissions below this level will be added to the main capital allowance pool with a 20 percent writing down allowance. Cars with private use will continue to be held in individual pools but with the above criteria determining the rate of capital allowances.

Also from the above dates the rules affecting the tax relief on leased cars will be reformed so that a flat rate disallowance of 15 percent of the leasing payments will be applied for cars emitting more than 160g/km of CO2.

For expenditure on expensive cars before the effective dates a transitional five year period will be applied in accordance with a technical note to be released. This means that cars on fleet as at the date of change will be subject to the existing rules.

Also from the above dates the rules affecting the tax relief on leased cars will be reformed so that a flat rate disallowance of 15 percent of the leasing payments will be applied for cars emitting more than 160g/km of CO2. So there is a lot to think about, on top of whether to use rac.co.uk or a different insurance provider, as well as everything else that comes with owning a car.