In the past, the government tried to “tax company cars out of existence”, says Tax Tips & Advice. These days it’s a “little more enlightened”: the more environmentally friendly the car, the higher the tax relief.
So for cars with carbon emissions above 160g/km, your company can claim capital allowances (CAs). These are equal to just 10% of the cost of the car each year on a reducing balance basis. But if emissions are below this level, you’ll get CAs at a rate of 20% (ie, after five years you’ll have received tax relief on 61% of the cost).
However, as these rates are falling from 2012, you’d be better off going for a car with very low emissions – of just 110g/km. At this level and below, your company can claim 100% of the cost of the car against tax in the year of purchase.
Nor do you have to “tool around” in a Smart car to get the tax break. There are now more than 200 cars on the market, including Audi A3s and BMW 320ds, which fall into the sub-111g/km bracket (see Businesscar.co.uk). So choosing the right low-emissions car could “save your company thousands”.