Capital and lease rental allowances on company cars to change from 2018

CAPITAL and lease rental allowances on company cars are to change from 2018, with reduced thresholds as the government continues its drive for clean air with vehicle taxation and incentives encouraging zero and low CO2 emissions.

For limited companies the changes announced in the March Budget 2016 to reflect falling new vehicle emissions come into effect on April 1, 2018, and for sole traders from April 6, 2018.

The advance notice was welcomed by the BVRLA.

Capital allowances from April 2018

• The government will extend the 100% First Year Allowance (FYA) for businesses purchasing low emission cars for a further three years to April 2021
• Reduce the FYA threshold to 50 g/km of CO2 from April 2018
• Reduce the main rate threshold for capital allowances for business cars to 110 g/km of CO2
• Continue to base Company Car Tax on CO2 emissions of cars, and consult on reforming the lower CO2 bands for ultra-low emission vehicles to refocus incentives on the cleanest cars beyond 2020-21

Lease rental allowances

Lease rental allowances are similarly linked to the capital allowance thresholds.

So if your business leases a car, the changes will affect you.

From April 2018 100% of the car rental can be set against taxable profits if the vehicle is below 110g/km of CO2, while vehicles above it will have a 15% disallowance. For details of the existing lease rental allowances click here.

One area of relief in the budget was the continued freeze on fuel duty which many expected to end with pump prices so low at around £1 a litre.