finally coming in for tax write offs on cars from 1 April. Capital
allowances (CAs) will now be tilted against cars with high CO2
emissions, instead of high-cost cars as before.
annual writing down allowances (WDAs) of only 10 percent. Those in
an intermediate range of 125-160g/km will get 20 percent WDAs.
Those that meet the toughest limit, under 125 g/km, will get 100
percent first-year allowances so the owner can write off the whole
cost in the year of purchase.
WDAs work on the “reducing balance” basis, being
applied to the tax-written-down cost at the start of each year. The
effect is that taxpayers can write off only about 27 per cent of
the cost of a high emission car within the first three years. This
of course falls far below the true depreciation cycle of almost any
Under the old rules, there were 20 percent WDAs for
all cars (or 25 percent before this time last year), but these were
capped at £3,000 per year for any car that cost over £12,000 when
In the new system there is continued discrimination
against leasing or contract hire for the least favoured cars.
Lessees suffer restrictions on tax deductions for rentals, in
addition to the CA restriction that normally falls on the
However, this penalty will be less severe than
before. Now there will be a 15 per cent rental disallowance on all
cars above the 160g/km limit, applied to the end user business.
Previously there was a pro rata disallowance based on 50 percent of
the excess car price above £12,000, and this applied to any lease
in a chain.
Tarun Mistry, director and head of leasing and
asset finance at Grant Thornton, said: “It will now make sense for
a wider group of cars to be taken on lease.
“Previously, the ‘lease v buy’ decision tended to
go against leasing on tax grounds for cars costing above £20,000.
The break-even point will now be much nearer to £30,000.”