When is a car not a car?

People often ask what is/is not a car for capital allowances and other purposes. Here’s a timely recap on the rules and how they are applied.

Basics

A business can claim capital allowances on cars bought and used in the business. However, the first issue is – what is deemed to be a car?

Members are often approached by their clients who want to buy, for instance, a double cab pick-up and they have been assured by the salesman that it ticks all the tax boxes and so is deemed to be a van. So full allowances and VAT can be claimed? Unfortunately it is not always that straightforward:

HMRC’s basic guidance states the following:

For capital allowances a car is a type of vehicle that:

• is suitable for private use – this includes motorhomes
• most people use privately
• was not built for transporting goods.

However, HMRC’s instructions to its own staff in the capital allowances manual are much more detailed:

For PMA purposes a car is a mechanically propelled vehicle except a vehicle:

1. constructed in such a way that it is primarily suited for transporting goods of any sort, or
2. of a type which is not commonly used as a private vehicle and is not suitable for use as a private vehicle.

Note that this uses somewhat subjective words – ‘primarily’, ‘commonly’ and ‘suitable’.

So perhaps to add some clarification, the manual has further very interesting guidance:

‘Treat a car that is capable of being used as a private vehicle as a car for PMA purposes no matter how the taxpayer actually uses it (Roberts v Granada TV Rental Ltd 46TC295).’

So clearly the word ‘capable’ is meant to override the above subjective issues?

Conversely. the manual continues:

‘Do not treat the following vehicles as cars for PMA purposes:

• a car that it is illegal for a taxpayer to use as a private vehicle even if the taxpayer sometimes uses it as a private vehicle (Gurney v Richards 62TC87)
• cars used by a driving school and fitted with dual control mechanisms (Bourne v Auto School of Motoring (Norwich) Ltd 42TC217)
• emergency vehicles. A vehicle equipped with a fixed blue flashing light on the roof which can only be used on the road by a fire officer or police officer is an emergency vehicle
• hackney carriages ( traditional ‘London black cab’ type vehicles)
• double cab pick-ups with a payload of one tonne or more. (Payload is the difference between a vehicle’s maximum gross weight and its kerbside weight.)’

The final point will be of interest to many. Many of these pickups are capable of being used as, and suitable/commonly used as, cars but according to the guidance they will not be treated as cars.

Capital allowances for cars

For expenditure after April 2009 the Finance Act 2009 introduced new rules that were designed to both encourage businesses to purchase cars with lower carbon dioxide emissions and reduce their administration costs.

The capital allowances treatment of expenditure on a car depends on the carbon dioxide emissions of the car rather than its cost. Expenditure after 2009 will be treated in different pools.

A summary of the current treatment dependent of the CO2 figure is:

Cars bought from April 2015

Cars bought between April 2013 and April 2015

Things to remember:

• if there is an element of non-business use of the car then the expenditure will still need to be allocated to a single asset pool (see HMRC manual CA27005) but the rate at which WDA are given will depend on the car’s CO2 emissions
• the old rules relating to ‘expensive’ cars are only applicable to expenditure pre 2009 – see HMRC manual CA23520
• certain cars with low CO2 emissions (see above) will still qualify for 100% FYA as described in CA23153
• if your business provides a car for an employee, capital allowances can normally be claimed on the full cost. However, this may need to be reported as a benefit if they use it personally.