When a company purchases a fixed asset, such as tools, machinery or a car, it is not usually possible to deduct the entire expenditure on the asset from the profits straightaway on the basis that it represents capital expenditure. Instead, tax relief is calculated for qualifying capital expenditure by way of capital allowances, which effectively spreads the amount of tax relief that can be claimed over a number of years; as opposed to the depreciation for accounting purposes, which is generally not deductible for tax purposes.
With company cars, there are special rules dictating the amount of capital allowance that can be offset against profits each tax year.
Prior to April 2021, the Lease Rental Restriction's were different to how they are now.
For contracts entered into between April 2009 and March 2021, Capital Allowance Rates are limited according to the CO₂ emissions as follows:
| First Year Allowance 1 |
Main Pool | Special Rate Pool |
||||
| Period 2 | Emissions (g/km) | Allowance | Emissions (g/km) | Allowance | Emissions (g/km) | Allowance |
| 2019-2021 | 50 or below | 100% | 51-110 | 18% | Above 110 | 6% |
| 2018-2019 | 50 or below | 100% | 51-110 | 18% | Above 110 | 8% |
| 2015-2018 | 75 or below | 100% | 76-130 | 18% | Above 130 | 8% |
| 2013-2015 | 95 or below | 100% | 96-130 | 18% | Above 130 | 8% |
| 2012-2013 | 110 or below | 100% | 111-160 | 18% | Above 160 | 8% |
| 2009-2012 | 110 or below | 100% | 111-160 | 20% | Above 160 | 10% |
Capital allowances available via the main or special rate pools are calculated on a reducing balance basis, but there is no longer any balancing allowance or charge on disposal, unless a car has been allocated to a single asset pool for a sole trader or partner because it is used partly for private purposes. Hence there will no longer be 100% recovery of tax relief on commercial depreciation over the life of a car on the fleet.
For information about current Capital Allowance Rates, please view our latest Tax Card:
