Changes to Capital allowances for business cars – April 2018 & IASB January 2019 Changes to ‘Capatalised’ Leases

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How will the changes in Capital Allowance rates effect business’s from April 2018?

Any Business incurring expenditure from April 2018 on the acquisition or leasing (contract hire or finance lease) of cars for use in their business will be subject to the new rules.  These new rules are in place to encourage fleet operators to consider low/lower CO2 rated cars, the CO2 rate at which you can claim 100% of the rental is about to be reduced again, it used to be set at 160 g/km, now it is 130 g/km and from the 1st April 2018 it will be 115 g/km.

Below is a brief summary of the pending changes, for more detaiuls please visit the HMRC website or consult your accountant, this information is for guidance only;

For Purchases

  • 0 to 75*g/km = 100% 1st Year Allowance
  • 76 to 130**g/km = 18% Pool
  • 131+g/km = 8% Pool
  • *Excludes leasing companies
  • *50g/km from April 2018
  • ** 110g/km from April 2018


For Contract Hire

  • 0 to 130***g/km = 100% of rentals allowable
  • 131+g/km = 85% of rentals allowable
  • ***This includes any unrelieved VAT (VAT not reclaimed through your quarterly VAT return)
    • *** 110g/km from April 2018

Cars first available for use on or before 31/03/2018, old rules will apply for the duration of the lease (including extensions).  If the car’s CO2 is greater than 130g/km (110g/km from April 2018), unreclaimed VAT is also restricted to 85%.  Case law in this situation is Britax International GmbH v CIR [2002]; Parker LJ said in paragraph 72, “I also bear in mind that the concept of ‘expenditure’ is wide enough to include payments which may not strictly be regarded as rentals.  This includes any element of unrelieved VAT”.

IASB (International Accountancy Standards Board)

  • IFRS 16 eliminates the classification of leases as either Operating Lease or Finance Lease
  • Instead all leases are treated in a similar way to Finance Lease applying IAS 17
  • Leases are ‘capitalised’ by recognising the present value of the lease rentals and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment
  • Effective January 2019 (subject to confirmation)


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