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New tax rules on company vehicles and capital allowances

Many businesses around the UK operate a fleet of company cars which play an integral role in their success. While some companies may be moving towards making their fleet electric, not all are ready to do this just yet. If you do need to replace company cars soon though and plan to go for non-electric, you should know about the latest Government legislation. This saw changes to capital allowance tax rules come into force for organisations from 1st April 2021 and from 6th April 2021 for sole traders/partnerships.

What do changes to company cars and capital allowance rates mean?

The major change to know about is that there has been a large reduction in advance capital allowances for non-electric cars. Now these are in effect, it is essential to know more about them so you can deal with purchasing vehicles for business use effectively moving forward.

In terms of capital allowance for company cars, the new rates are as below:

- Any new car with zero emissions (i.e. fully electric cars) gets a 100% allowance in the first year

- New company cars with 1-50g/km emission levels get an allowance figure of 18%

- Any cars with an emission level of over 50g/km only get a 6% allowance rate

For business owners, this tightening on non-electric cars is something to think about carefully. Although you might not have planned to switch your fleet over to electric cars yet, these newly applied rates may make it something to consider.

It is key to know that the new rates for capital allowance also hit most hybrid cars. While these cars might have been able to get 100% advance tax relief pre-April 2021, they will now only be able to claim the 18% or 6% annual rate in most cases. It is also worth noting that only new cars are eligible for enhanced allowances.

First year allowances

If your business buys a new goods van with no emissions at all from now until April 2025, this vehicle will qualify for the relevant first-year allowance. Any company that buys new fully electric cars can also make first-year allowance claims for installing charging points on their premises (as long as you only use them to charge the vehicles). These first-year allowances are very useful as they can be claimed alongside the annual allowance of up to £200,000 on plant which qualifies.

Benefits in kind

It is true that staff and directors with company vehicles still pay tax on their car in line with benefit in kind regulations. Over recent years, the rates for EVs have been steadily dropping. The latest benefit in kind figures for electric vehicles are shown below:

- 2021/22 - 1% of the listed price

- 2022/23 - 2% of the listed price

- 2024/25 - 2% of the listed price

- Hybrid cars with a driving range of over 130 miles are eligible for a 2% listed price rate

The above rates should make EVs less expensive for tax when compared to diesel or petrol cars.

What about non-electric company cars?

There are two emission figures applicable for new non-electric cars registered post 1st September 2019. These emissions will be delivered from both the new WLTP and older NEDC schemes. It's thought that the WLTP scheme gives an emission number of 22% higher than the NEDC scheme. For any company car registered after 6th April 2020, only WLTP numbers will be eligible for working benefits in kind out. This will include a 2% lower percentage though to recognise the switch for NEDC to WLTP.

Get more help with company cars and capital allowances

There is no doubt that keeping up with changing rules and understanding them can be tricky for most business owners. It is therefore wise to let a professional accountant help. Here at SRB Associates, we have guided many SMEs around complex issues like this in the past. Based in Melton Mowbray and serving the surrounding area, our team of professional accountants have expert knowledge on the latest capital gains allowance rates. Get in touch via the contact form on our website for more information.