Your Questions Answered by TaxAssist Accountants

Tax Relief Changes For Hybrid Cars

I am thinking about getting a hybrid car for my Limited Company business, but I have heard that there are changes coming in soon that could impact this. Could you advise?

Answer

Currently (pre-April 2021) if you purchase a new hybrid vehicle with less than 50g/km then it would qualify for 100% FYA (first year allowance). This means the full cost would be an allowable deduction against your business’ profits, so it reduces your company’s tax bill.

From April 2021, this will no longer be the case as only zero emissions/pure electric cars will qualify for the above allowance.

Although you won’t get full relief from April it will still qualify for capital allowances, but the amount depends on the CO2 emissions of the hybrid.

Cars with CO2 emissions of between 51g/km and 110g/km will attract an annual writing down allowance (WDA) of 18%. Cars with CO2 emissions exceeding 110g/km will only get WDA of 6%.

It’s also worth noting that if you are going to use this vehicle for personal journeys (this includes commuting) then you would also be taxed personally. This is called a benefit in kind. In broad terms, this is calculated by using the value of the car and multiplying by a percentage. The percentage is given by HMRC and based upon the CO2 emissions of the car. For low emission cars of less than 50g/km they also account for how many miles the vehicle can travel on just pure electric. In general, the lower the emissions and further it can travel on electric will mean the lower the percentage is.

For a new hybrid of less than 50g/km, if it can travel 130+ miles on electric, it would be 0% multiplier currently but from April this increases to 1%.

There is lots to think about when thinking of purchasing a car for your business and it could attract some hefty tax bills if not thoroughly researched. So please get in touch with us today so we can help you choose the most tax efficient vehicle for your business.

Last updated: 26th February 2021

 

Information supplied by Cheryl Hopkins, Chartered Certified Accountant, TaxAssist Accountants. Advice shared in this article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayers’ circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take, action, as a result of reading this item, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.