Construction company vehicles – How much tax relief can you claim?

When it comes to claiming capital allowances, there seems to be some uncertainty, especially knowing which vehicle expenses are tax deductible. The first question that needs to be considered is – what type of vehicle do you need for your business?

• Heavy plant/machinery vehicles (Cranes, Bulldozers, Forklifts, Excavators,Diggers and any heavy-duty vehicle, specially designed for executing construction tasks.)

All the above vehicles are classed as plant or machinery and are fully deductible for tax purposes. These vehicles will qualify for the annual investment allowance (AIA) and receive 100% relief in the year of purchase, or writing down allowances (WDA) and receive relief at 18% each year until full relief has been given.

• Commercial Vehicles (Vans, Pickup trucks, Light goods vehicles, and any vehicle that is licensed to be used for the transportation of goods or materials rather than passengers.)

The above vehicles are also classed as plant and machinery and are therefore fully deductible on the same basis as the heavy plant/machinery vehicles. However, there are some grey areas regarding what is a van and what is a car. HMRC define a van as “a vehicle primarily constructed for the conveyance of goods or burden.” Small cars with 2 seats and 2 windows in the front only are therefore classed as vans for tax purposes. This is due to the lack of rear seats, indicating the vehicle is for the transport of goods, not passengers.  Double cab pick-up trucks, with a total payload of more than 1 tonne, are also treated as vans for tax purposes, despite having 4 seats and therefore having the ability to transport both passengers and goods.

• Motor Vehicles (Electric Cars, Hybrid Cars, Motor Cars, Sports Utility Vehicles, 4×4)

Tax deductions for motor vehicles differ from the deductions available for plant and machinery vehicles. Motor vehicles deductions are claimed at a lower rate each year, unless the car is a new electric car or has very low emissions where you can also claim additional first year allowances (FYA), until full relief has been achieved. The rate at which tax relief is given depends of the emissions of the vehicle. The current rates are as follows –

Therefore, if a company was to purchase a new electric car, or a new car with very low emissions, for example the BMW i3 or the VW Passat GTE, the full price of the car would be tax deductible in the year of purchase. Tax would then be saved at 19% of the vehicle cost price.

However, if the company purchased a range rover 3.0 TDV6, only 8% of the cost price can be used to reduce profits in the year of purchase. Therefore, the tax saving would be 19% of 8% of the vehicle cost price.

As the above example illustrates, not only does buying a low emissions car help the planet, it could help to lower corporation tax bills.

If you would like further information on capital allowances, and the rates at which they can be claimed please email our EQ Property & Construction team at info@eqaccountants.co.uk or contact one of our offices.