The extension of the 100% first year allowance (FYA) for businesses purchasing ultra low emission vehicles is to go ahead but the threshold for lease rental restrictions will be lowered
The measure extends the current system by a further three years from April 2018 but only for companies that purchase ultra low emission vehicles.
This means that companies can claim the main rate (18%) of capital allowances on the acquisition or leasing of cars for use in their business for a further three years from 2018 through to 2021 for ‘greener’ models with the lowest emissions.
In addition, businesses will only be able to claim the main rate threshold for capital allowances for business cars which have 110 g/km of CO2 and the FYA threshold (100%) for business cars which have 50 g/km of CO2 from April 2018.
The changes to the main rate and FYA thresholds will have effect in relation to qualifying expenditure incurred from 1 April 2018.
The government will reduce the main rate threshold for capital allowances for business cars to 110 grams/kilometre (g/km) of CO2 and the FYA threshold to 50g/km of CO2 from April 2018, to reflect falling vehicle emissions.
In addition, the measure also lowers the lease rental restriction (LRR) in line with the main rate threshold.
The threshold above which the LRR applies will reduce in line with the main rate threshold, from 130g/km to 110g/km from April 2018.
Leases that started before April 2018 will remain subject to the current threshold.
Cars with emissions above 130g/km face a 15% LRR, meaning businesses can only deduct 85% of any rental payments against their taxable profits.
The LRR threshold will reduce in line with the main rate threshold, from 130g/km to 110g/km from April 2018.
There is expected to be an impact for business resulting from the lease rental restriction due to the revalorisation of the CO2 emission thresholds. Businesses may be required to calculate the restriction on more of their car fleet, with the average number of cars affected expected to be around 320,000 each year.
The move is designed to change buying habits and is set to raise £120m in additional revenue for the Exchequer through to 2021.
The measure was first announced in Budget 2013, with the extension to the current system set out in Budget 2016.