Friday 5th June 2009 Blog

Car Scrappage Scheme Tax Implications

The car scrappage scheme, which was launched on 18 May 2009, also applies to small vans that weigh up to 3,500kg. So if your client is thinking of trading in their 10 year old van for a new one, this could be a good time.

Capital Allowances

The scrappage scheme gives a £2,000 discount off the list price, and it is this net cost which will go into the capital allowances pool. A van will qualify for the Annual Investment Allowance (AIA), which allows 100% of the cost to be set against the business profits in the year of purchase. The AIA is limited to purchases with a total of £50,000 per year, so your client should plan to spread out any large purchases. Any excess cost above the AIA cap will qualify for capital allowances of 40% if the purchase is made before 1 April 2010, otherwise the excess will qualify for 20% capital allowances per year.

VAT

If your client is VAT registered they will be able to reclaim the VAT charged on the purchase of a new van, although not all of it where it is for an unincorporated businesses with private use. However, they must reduce their VAT claim by £130.43, which is 15% of the manufacturer's gross discount of £1,000. The Government contribution to the scrappage scheme of £1,000 per vehicle does not affect the VAT.

Car Benefits

If your clients company is purchasing a car through the scrappage scheme, which will have some private use, the driver will be taxed on a percentage of the vehicle's list price. The percentage depends on the car's CO2 emissions, but the list price is fixed. It is not reduced by the £2,000 discount given under the scrappage scheme.

Posted by: Bookcert Mentoring Team

Friday 5th June 2009

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