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Changes To Capital Allowances From April 2021

Changes To Capital Allowances From April 2021

Matthew Grief

The Capital Allowances Act has now been amended to extend the 100% first year allowances (FYA) for zero-emission cars, zero-emission goods vehicles, and equipment for gas refuelling stations by four years, until 31 March 2025.
 
The legislation will have effect from 1 April 2021 for business chargeable to corporation tax. For businesses chargeable to income tax, it will have effect from 6 April 2021.
 
Capital allowances allow businesses to offset qualifying capital expenditure against their taxable income, reducing the tax due. Where 100% FYAs are available, the entire expenditure can be offset against the taxable income.
 
The Act has also reduced the CO2 threshold from April 2021, which determines the rate of capital allowances available i.e. how much % you can offset against taxable income.
 
This means cars acquired from April 2021 with CO2 emissions under 50 g/km will be eligible for WDAs at the main rate of 18%. Cars with CO2 emissions over 50 g/km will be eligible for WDAs at the special rate of 6%.
 
If you are considering purchasing business cars, we would advise you check the CO2 emissions and evaluate the impact on your corporation tax / income tax. With CO2 emissions over 50 g/km, but lower than the current limit of 110 g/km, it is more beneficial to purchase before the introduction of this new legislation as you will be eligible for 18% writing down allowances, as opposed to 6%.
 
In terms of numbers
If a car, with C02 emissions of 100 g/km, cost £25,000, pre the introduction of this legislation you would be eligible for £4,500 in capital allowances (18% write down) but after its introduction this would be reduced to £1,500 (6% write down).

This therefore makes a significant difference to the final taxable profit. In terms of the cash position the reduced writing down allowance would cost the company £570 in corporation tax relief in year one alone (based on the current rate of 19%).

For further advice on any of the information contained in this article, please contact your usual Moore adviser.