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One of the other capital allowance changes announced in the Autumn Budget was the reduction of the writing down allowance on assets in the special rate pool from 8% to just 6% per annum reducing the balance from April 2019.
The assets included in this pool include long-life assets, such as aircraft, integral features within buildings and cars emitting more than 110g CO2 per kilometre. A claim for the 100% AIA referred can be made for expenditure on these assets, (with the exception of motor cars) and this will result in faster tax relief.
This means that where a company buys a motor car that emits more than 110g CO2 per km it will take many years to get relief for the expenditure as even when the car is sold the proceeds are deducted from the special rate pool and continue to be written down at 6% reducing balance.
For example, Global Ltd which makes up accounts to 31 March each year buys a new Mercedes E220d AMG line for the managing director Mr Global for £40,000. As the CO2 emissions are 127g per km the WDA would be 8% for the year ended 31 March 2019 = £3,200 leaving a tax written down value of £36,800. The 6% WDA would then apply for the year ended 31 March 2020 = £2,208 leaving £34,592.
If the car was sold for £25,000 in the following year then the remaining balance of £9,592 would continue to be written down at 6% per annum, hence a very long write off period.
It may be more tax efficient to lease such a vehicle as, although 15% of the lease rentals are disallowed for tax purposes for such high CO2 vehicles, this may nevertheless be more beneficial.
Note that the above rules operate differently where the motor car is acquired by a sole trader or a partner for his business as the car is not included in the pool and a balancing adjustment occurs when the car is sold.