Paul Phillis & Co Limited

Chartered Accountants

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11a Corelli Street

Newport NP19 7AR

01633 267372

mail@paulphillis.com

news&views

October 2012

When a business purchases a car, tax relief is available in the form of 'capital allowances'.  This means that each year, HMRC allow a fixed percentage of the cost of the car to be deducted from profits.



For 2012-13 these rates are:




Alternatively where a business leases a car, tax relief is also available depending on the CO2 emissions of the car as follows: -




Current tax relief

“Planning for company cars”

Changes to the tax treatment of company cars require careful consideration at the time of purchase.  Buy or lease analysis may also yield tax saving opportunities”

Example 2

The same company purchases the same car but on 01.04.13.


The company will receive capital allowances at 8% which ultimately results in a total reduction of its corporation tax liability of £3,000 in the first five years following acquisition.


It will take the company some 55 years to obtain full tax relief on the cost of the car - AGAIN EVEN IF IT'S SOLD IN THE MEANTIME!

These reliefs are due to change from 1 April 2013, with the CO2 emission threshold above being reduced from 160g/km to 130g/km.  This is quite a significant change, affecting numerous cars, and will result in either an increase in tax liability and/or a company receiving tax relief over a much longer period of time.

Effective date

If you are considering purchasing a company car, from a taxation point of view there are a number of issues to consider including:




Planning opportunities

As always, we are happy to help advise on these changes or explain them and relevant planning opportunities in further detail. If you are an existing client please speak to your regular contact.


If you are not a client and would like to arrange a free, non-obligation consultation on this or any other matter you feel that we may assist you on please call us on 01633 290745 or complete our contact form to arrange a visit.


Please refer to our resources page for updates on other tax changes and matters which may affect your business or personal circumstances.  To receive these updates direct to your inbox, please sign-up to our mailing list.



Advice

Example 1


A small company paying corporation tax at the small company rate purchases a BMW on 01.03.13 for £40,000 with CO2 emissions of 139g/km.


The company will receive capital allowances at the rate of 18% which ultimately results in a total reduction of its corporation tax liability of £5,000 in the first five years following the acquisition.


It will take the company some 35 years to obtain full tax relief on the cost of the car - EVEN IF IT'S SOLD IN THE MEANTIME!