Reduction to the CO2 limit on cars

You may well have seen in recent weeks the Volkswagen scandal involving them using equipment to give more favourable CO2 emissions figures. Well this is also very topical for tax. With the government trying to meet the EU targets on pollution, favourable capital allowance limits is an incentive the government use to try and drive down CO2 emissions figures. The CO2 limits for capital allowances have reduced from April 2015. These are currently:


The rate, be it first year allowance, main rate or special rate, is determined when the car enters the accounts (or is included on your personal expense claims) and stays in that category until it leaves the accounts. This means that an existing car cannot move from the main rate to special rate should the government change the CO2 bandings in the future. It doesn’t, however, protect you from the government changing the writing down allowance percentages.

If you intend to take advantage of the 100% first year allowance please be careful what you believe from salesmen or even the manufacturers’ websites. We have had an example recently of a client who was sold a car on the premise that it was under the CO2 limit that would qualify for a 100% capital allowance claim in the first year only to find out later, from the accompanying paper work and the government’s vehicle enquiry service, that the car was over the limit and did not qualify for the preferential rate. We would, therefore, recommend that you always check this yourself. You can do this using the government’s vehicle enquiry service at the following website:

Beware of the balancing allowance
Should you manage to take advantage of the 100% writing down allowance you will need to be aware that there will be a balancing charge when you sell the car. For example, say you bought a new car for £40,000 that had CO2 emissions of 60g/km and is used 50% for business. This would give you a deduction from your profits of £20,000 (£40,000 x 100% x 50%). If you then come to sell the car in 5 years’ time for £10,000 this will have the opposite affect and increase your profits by £5,000 (£10,000 x 50%).



For more information, please contact Robert Hadden.