Capital Allowance Changes 2018

Capital Allowance is a deduction that can be taken from a company’s overall corporate or income tax on profits. You can claim Capital Allowance on cars you lease and buy in your business. Depending on the car’s emissions you can deduct the full or partial value of the car from your profits before you pay tax.

Changes in Capital Allowance first came into conversation in the 2013 Budget with a commitment being set to review FYA (First Year Allowance) within the 2016 Budget. The 2016 Budget duly announced changes to the CO2 emissions thresholds for the FYA and set the main rate of 18% for Capital Allowance effective from April 2018.

Lease Rental Allowance

You can claim tax relief as a Capital Allowance on leased cars, this allowance is assigned in two ways based on the CO2 output per kilometre driven. The 2013 Governmental Budget set out the previous Capital Allowance CO2 bandings:

  • Cars emitting CO2 emissions up to 130g/km face no lease rental restrictions and can deduct the full cost of the lease against taxable corporate profit.
  • Cars emitting CO2 emissions over 131g/km face a 15% LRR (Lease Rental Restriction) which means that companies can only deduct 85% of any rental payments against their taxable profits.

These changed in April 2018, cars will now have to emit under 110g/km CO2 emissions to deduct the full cost of the lease against taxable corporate profit and any car over this will face a 15% disallowance.

Also, if a business hires a car, for its own use, with emissions exceeding 130g/km for more than 45 days consecutively the deduction allowable for tax purposes for the expense of hiring the car is restricted. The amount of the deduction allowable is reduced by 15%.

Purchase Allowance

Business are also able to claim tax relief as a Capital Allowance on purchased cars based on their CO2 emissions per kilometre driven.

The current Capital Allowance for purchased cars are:

  • Any car purchased with CO2 emissions of 75g/km or less can claim a 100% first-year allowance.
  • New and used cars with CO2 emissions between 75g/km and 130g/km can claim main rate allowance of 18%.
  • New and used cars with CO2 emissions above 130g/km can claim special rate allowance of 8%.

The threshold for purchased cars is changing from April 2018, cars will only qualify for the 100% first-year capital allowance if their CO2 output per kilometre driven is below 50g/km. The emissions threshold for the main rate allowance is also changing with CO2 emissions per kilometre driven falling from 130 g/km to 110 g/km.

Business are also able to claim a 100% FYA on low CO2 emission on fully electric cars. This was due to end on 31 March 2018, however, it has recently been announced that the scheme will be extended for a further three years until 2021. This means businesses investing in these zero and ultra-low emission vehicles will continue to benefit from the upfront tax relief.

Vans with zero CO2 emissions are also eligible for a 100% first-year allowance. Any other van should be treated as plant and machinery and allocated to the main pool, where it will be eligible for writing down allowances at 18%.

Capital AllowanceCurrent Permitted Emissions per Kilometre Driven
Pre April 2018
New Permitted Emissions per Kilometre Driven After April 2018
100% First-Year AllowanceCO2 Emissions of 75g/km or less CO2 Emissions of 50g/km or less
Main Rate
Allowance 18%
CO2 Emissions between 75g/km and 130g/kmCO2 Emissions between 75g/km and 110g/km
Special Rate Allowance 8%CO2 Emissions above 130g/kmCO2 Emissions above 110g/km

Looking for more information on Capital Allowance or just looking for more Fleet information? Our Fleet specialists are here to help, get in touch today.

Posted on Posted in Articles

Recent Articles


We’re hiring! Are you our next Sales Manager?

Do you have a passion for sales? Do you enjoy managing a team of enthusiastic account managers and executives?  If you can answer yes to these questions and are ready to take your career to the next level – Join us! We are looking to recruit a high achieving Sales Manager to drive performance and […]


COVID-19 FAQ

Get answers to all your questions here… We would like to assure you that despite the current exceptional circumstances triggered by COVID-19, we will work closely with you to mitigate any negative effects. We are here to help and guide you through these challenging times. These FAQs have been designed to answer the most urgent […]


Gofor Finance Update 24th March 2020 – COVID-19

To all our customers, We hope that you and your loved ones are both safe and well. As the Coronavirus (Covid-19) situation continues to develop, we are taking all measures possible to comply with Government guidelines and to keep you, our customers, and our staff, colleagues and communities safe. We have now fully implemented a […]


Visit Archive