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Capital Allowances For Company Cars Explained
What Are Capital Allowances For Vans?
Capital allowances are the tax rules that decide how a business receives tax relief for the cost of buying business assets, including many company vans.
Vans are generally treated differently from cars for capital allowance purposes. A van is normally treated as plant and machinery, while company cars are subject to specific car rules based mainly on CO2 emissions.
This distinction is important because many vans may qualify for more generous tax relief than cars.
Annual Investment Allowance For Vans
The Annual Investment Allowance, often shortened to AIA, allows businesses to claim tax relief on qualifying plant and machinery expenditure up to the annual limit.
The AIA limit is currently £1 million.
Where the conditions are met, the cost of a qualifying van can often be deducted from taxable profits in the year of purchase.
For example, if a business buys a qualifying van for £30,000 and has sufficient AIA available, the business may be able to claim a £30,000 deduction against taxable profits.
When the van is sold, the sale proceeds will normally be reflected in the capital allowance calculation.
Electric Vans And 100% First Year Allowances
Electric vans can also be important for capital allowance purposes.
Qualifying new zero-emission vans may be eligible for 100% First Year Allowances.
This means the qualifying cost of the van may be deducted against taxable profits in the accounting period in which the van is purchased.
If the business has already used its AIA limit, 100% First Year Allowances may still be relevant for qualifying electric vans.
There is an important point where a government grant is received. If a Plug-In Van Grant or other relevant grant is claimed, the grant may reduce the amount of expenditure that qualifies for capital allowances.
Writing Down Allowances For Vans
If a van does not qualify for full relief through AIA or a First Year Allowance, tax relief may be given through Writing Down Allowances.
Writing Down Allowances spread tax relief over more than one year.
The current Main Pool Writing Down Allowance rate is 14%.
This is calculated on the remaining tax written down value, so the amount of relief normally reduces each year.
Worked Example: Van Qualifying For AIA
Assume a business buys a qualifying van for £30,000 and has sufficient Annual Investment Allowance available.
- Cost of van: £30,000
- AIA claim: £30,000
- Taxable profits reduced by: £30,000
If the business pays corporation tax, reducing taxable profits may reduce the corporation tax due.
The actual tax saving depends on the business tax position, available profits and applicable tax rate.
Worked Example: Writing Down Allowances
If a £30,000 van does not qualify for AIA or First Year Allowances, relief may be spread using Writing Down Allowances.
- Year 1: £30,000 × 14% = £4,200
- Year 2: £25,800 × 14% = £3,612
- Year 3: £22,188 × 14% = £3,106
- Year 4: £19,082 × 14% = £2,671
The allowance reduces each year because the calculation is based on the remaining written down value.
What Happens When A Van Is Sold?
When a business sells a van, the sale proceeds are normally brought into the capital allowance calculation.
This can result in a balancing adjustment or affect the value remaining in the relevant capital allowance pool.
The treatment will depend on how the van was originally dealt with for capital allowance purposes and the amount received on sale.
Company Vans And Corporation Tax Relief
Capital allowances reduce taxable profits.
For companies, lower taxable profits can reduce corporation tax.
The timing of the relief can be important. AIA and 100% First Year Allowances can provide relief more quickly than Writing Down Allowances spread over several years.
Company Vans And Company Cars Are Different
Company vans and company cars are not treated in the same way.
Vans are generally treated as plant and machinery and may qualify for AIA. Company cars are subject to separate capital allowance rules based on CO2 emissions, with different treatment for qualifying electric cars.
The Benefit-in-Kind rules are also different for vans and cars.
Self-employed Van Use
For the self-employed, where a van is used partly for private journeys, capital allowances are normally restricted to the business-use proportion.
For example, if a qualifying electric van costs £30,000 and business use is 50%, the capital allowance claim would normally be restricted to £15,000.
Frequently Asked Questions
Can a business claim capital allowances on a company van?
Yes. A company van is generally treated as plant and machinery for capital allowance purposes, so a business may be able to claim tax relief on the cost of the van where the relevant conditions are met.
Can vans qualify for Annual Investment Allowance?
Yes. Vans can often qualify for Annual Investment Allowance, allowing the qualifying cost to be deducted against taxable profits up to the annual limit.
Do electric vans qualify for 100% first year allowances?
Qualifying new zero-emission vans may qualify for 100% First Year Allowances. Where a government grant is received, the grant may reduce the qualifying expenditure.
Are vans treated the same as cars for capital allowances?
No. Vans and cars are treated differently. Cars are subject to specific emissions-based capital allowance rules, while vans are generally treated as plant and machinery.
What happens when a company van is sold?
When a company van is sold, the sale proceeds are normally brought into the capital allowance calculation. This can affect the final tax position for the business.
Can self-employed people claim capital allowances on vans?
Yes, but if a self-employed person uses the van for both business and private journeys, capital allowances are normally restricted to the business-use proportion.
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