Budget 2016 Capital Allowance Rates Changes

During Budget 2016, the chancellor announced that in 2018 we will see reductions in the main rate capital allowance threshold for cars from 130 grams to 110 grams of CO2 per km.

At the same time, First Year Allowances rates for cars will be squeezed from 75 grams down to 50 grams of CO2 per km.

(FYI: Capital Allowance Rates are only applicable for purchased cars, not leased.)

2016 Budget Capital Allowance Changes

Capital Allowance 2018/9 Rates Table for Cars

To summarise the announced capital allowance rate band changes due in 2018, here is a simple table to highlight the "now and then" differences alongside their allowance percentages:

* First Year Allowance. No further years applicable. ** Writing Down Allowance

 
2016 Budget Capital Allowance Changes
 

Communication is the Key

The Government’s objective is to increase the use of cleaner transport by businesses and reduce CO2 emissions, which all sounds super but these kind of changes take time to filter down into fleet culture. By that we mean fleet drivers aren't always aware of how new legislation affects potential vehicle choices.

Your resident tax guru will be acutely aware of 2018 CO2 threshold changes but as the fleet decision maker, it is your unenviable job to translate the legislation into reality and, equally importantly, manage driver expectation. Changes in capital allowance legislation will inevitably mean changes to company car lists so communicate as much as you can with your drivers in the lead up.

One of the biggest company car issues we've come across in recent years is drivers being disappointed by smaller engine sizes on their car list: a ripple of fear among employees that a new 1.6 diesel is going to feel positively sluggish compared to their current 2 litre. Codswallop. The reality is manufacturers are getting more and more power from smaller engines. Take the time to explain to your drivers why this is happening and encourage them to compare horsepower or torque rather than just litres or cc when it comes to power concerns.

 
2016 Budget Capital Allowance Changes
 

Will Capital Allowance History Repeat Itself?

In the 2012 Budget the government announced that, from April 2013, the CO2 emissions threshold for the main rate of capital allowances for business cars would be reduced from 160 grams per km to 130 grams per km.

Manufacturers were in a race against time to lower their vehicles' CO2 emissions to stay appealing to the market tax-wise but also develop engine (and battery) technologies so that their newest models didn't become undesirable snails. When this 130 gram CO2 emission threshold was announced the average UK company car’s CO2 was 159 grams: it’s fallen to an average of 144 grams of CO2 per km today. In parallel, company car engine sizes have fallen almost .1 of a litre with diesel engine averages sitting below 2 litres since 2013. We’re just waiting for petrol to catch up…

We fully expect this small engine trend to continue in light of the 2016 capital allowance announcement. By 2018 trends indicate that the average company car engine, including both petrol and diesel, will be under 2 litres. Small engines are on the up so drivers will need to get on-board.

 
2016 Budget Capital Allowance Changes
 

Company Car List Predictions for 2018

To keep tax under control for both employers and employees, we would predict that 2018 company car list will have:

 
  • smaller engines as manufacturers glean more power per litre
  • fewer diesel engine options as the surcharge is sticking around until 2021
  • more electric vehicles (EVs) and ultra low emission vehicles (ULEVs)
  • and naturally, more car choices in general sitting under the 110 grams of CO2 per km threshold
 
 
 

More on the 2016 Budget

 
2016 Budget Capital Allowance Changes
 
 

Check out our overall 2016 Budget summary for all the changes which affect UK car fleets.