When accounting, it can be complicated to grasp what allowances can be claimed. Among the trickier areas are capital allowances, particularly as they apply to cars. By fully understanding what you are entitled to, you may be able to find ways to reduce your tax bill.
Capital Allowances
Capital allowances are available for businesses that invest in long-term or fixed assets. These are assets that you anticipate keeping within your business for at least twelve months.
When claiming capital allowances, you deduct some or all of the value from your profits. For some assets, you can claim the entire cost for that year, considerably reducing the tax bill, while for assets that depreciate in value, you might claim a percentage for each year that you own it, something that is known as a writing down allowance.
If you are unsure what capital allowances you can claim, consult an accountant. To find one, use a relevant search term like ‘business accountants Cheltenham’ for that area and you will get results such as https://www.hazlewoods.co.uk/expertise/business-accountants/cheltenham.
Cars
If you claim your car as a writing down allowance, the amount you can claim will depend on your car’s CO2 emissions. Cars purchased after April 2021 with CO2 emissions of 50g/KM or less can claim the main rate of 18%, while those with higher emissions can claim 6%.
If you have a new, unused electric car or a car with zero CO2 emissions, you can claim the 100% first-year allowance.
Cars for Business and Personal Use
If the car is used for both business and personal use, you can still claim capital allowance, but not for the whole vehicle. You will need to work out how much the car is used for business and claim accordingly. For example, if 60% of use is for business purposes, that is how much of the value you can claim.
Capital allowances are available for businesses and the self-employed only. If you are an employee, you cannot claim capital allowance for your car but should speak to your employer about company benefits.