Capital allowances: C02 emission threshold changes from April 2021


It has previously been announced that the 100% first year allowance (FYA) for hybrid and electric cars is to be extended from April 2021 to April 2025. This incentive was previously due to end on 31 March 2021.

However, the Co2 emission threshold which is used to determine whether a car qualifies for this FYA, is reducing from 50 g/km to 0 g/km on 1 April 2021. Practically, the FYA will only apply to pure electric vehicles with zero emissions (and not hybrid cars with emissions under 50 g/km).

Furthermore, the threshold used to determine the writing down allowance (WDA) for business cars generally is to be reduced from 110 g/km to 50g/km on 1 April 2021. This means that all cars, except for the most efficient hybrids (under 50 g/km) will be included in the special rate pool for capital allowances, with only a 6% annual allowance. Presently cars under 110 g/km receive the more generous 18% allowance WDA.

Typically, the 18% WDA means that a £30,000 car takes 12 to 13 years before the business obtains tax relief on 90% of the cost. From 1 April 2021, the WDA of 6% will mean it takes 37 to 38 years to obtain the relief.

Many clients have considered their approach to company cars over the last couple of years as the incentives for electric vehicles have been introduced. In light of the upcoming changes, it is worth revisiting your policy, and if you are considering the acquisition of any cars in excess of 50 g/km, accelerating this expenditure to pre-31 March 21 could be worthwhile.

Please contact us if you want to discuss these changes further.