Where a company has surplus cash, spending on assets that qualify for 100% capital allowances will reduce the corporation tax bill, and hopefully provide some long-term benefits.
Cars with CO2 emissions of no more than 50g/km currently qualify for a 100% first year allowance (FYA), so the full cost is deductible in the year of purchase. This is the same outcome as if the vehicle qualified for the AIA, but it is separate relief.
However, this FYA for low emissions cars will only apply to purchases up until 31 March 2021, so if you are looking to buy a hybrid-powered company car you need to get a move on. Many car dealerships are now doing video sales and home delivery is possible.
From 1 April the 100% FYA for cars will only apply to cars with zero CO2 emissions. This means that electric cars will qualify for the FYA, but other low emission cars won’t. Regulations (SI 2021/120) have extended the period in which purchases of electric cars will qualify for 100% FYA until 31 March 2025.
Commercial vehicles (not cars) all qualify for the AIA, whatever their CO2 emissions, so a 100% deduction can be gained for buying a new van. In all cases you need to review the benefit in kind charge for the driver of a company car or van. Electric company cars, and hybrids with an electric-powered range of 130 miles or more, attract a benefit charge of 1% of the list price for 2021/22.
Company vans have a benefit charge of £3,500 for 2021/22, but the benefit charge for electric vans should be zero for 2021/22.Written by the Tax Advice Network