Capital Allowances: Cars and Private Use

In a previous blog post, we looked at the basics of capital allowances: what they are and how they are typically calculated. But what happens to capital allowances on cars? And how are capital allowances affected when there is personal use of an asset?

How are capital allowances calculated on cars?
There is a unique system for claiming capital allowances on cars.

If you are using the mileage basis to claim car expenses (ie 45p per business mile), you cannot claim capital allowances as the 45p is deemed to include the cost of the car.

The amount of capital allowances you can claim is determined by the CO2 emissions. From April 2013, the allowances are as follows:

For new cars with CO2 emissions of 95g/km or less, 100% of the cost can be claimed

For CO2 emissions of 130g/km or less, you claim 18% on a reducing basis. (The reducing bais method is illustrated in the previous blog post about capital allowances)

For CO2 emissions higher than 130g/km, you claim 8% on a reducing basis.

How do you account for personal usage on capital allowances?
If you use an asset for both business and personal use, you should reduce the capital allowance claimed by the proproption of private use. So, for example, if you buy a van for £10,000 you would be able to claim £10,000 Annual Investment Allowance (“AIA”). But let’s say you use the van 20% of the time for private use. 20% of £10,000 is £2,000 so you would reduce the AIA by £2,000 and claim £8,000.

Bear in mind that as with many areas of tax, capital allowances are a complex area and so professional advice should be sought to determine the correct tax treatment of assets purchased applicable to your business. Additionally, rates and regulations are subject to frequent change.

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