The government has published a technical note that explains in detail how changes to the capital allowance regime for business fleets will take effect as part of an HM Treasury consultation on business fleet tax reforms, which closes on 27 February.
The document, Modernising tax relief for business expenditure on cars: a technical note, published by HM Treasury in December, clarifies proposals outlined in the 2008 Budget, including transitional rules.
The changes take effect from 1 April 2009 and seek to treat vehicles purchased or leased by companies differently, depending on CO2 emissions.
According to the draft legislation, companies purchasing cars with emissions of 110g of CO2 or below will be able to write down the full cost of these vehicles against their taxable profits in the first year of ownership, compared with 20% for those with vehicles that emit between 111g and 160g per km or 10% for cars that emit 161g or more of CO2 per km.
The draft also states the new rules will apply if a contract has become effective, or unconditional, after 8 December 2008 and the car is delivered on or after 1 August 2009, even if the expenditure is incurred before 1 April 2009.
Where under the existing regime, 'expensive' cars costing more than £12,000 have, or are, being subjected to a separate calculation with the writing down allowance capped at £3,000 per annum, this will remain in place for five years.
In the case of leasing, the proposals state that from 1 April 2009 those vehicles with CO2 emissions of 160g per km or less will face no rental restriction, meaning the cost of the lease will be fully deductible against taxable corporate profits.
Cars emitting 161g per km or more face a 15% lease rental restriction, meaning only 85% of any rental payments can be set against taxable profits.
