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BUDGET 2008: Capital allowance reform confirmed

Date: 12 March 2008   |   Author: Rupert Saunders

The Chancellor has confirmed that the proposals for reform of capital allowances on business cars will be adopted by the Government; but his speech did not give a date for implementation.

The reforms will further encourage companies that outright purchase their vehicles to buy less-polluting cars, especially those under 160g/km. It will also affect the capital allowances claimed by leasing companies, though the changes to monthly rental rates will be fairly minor.

The Chancellor said he was "replacing the existing capital allowance treatment for business cars with an emissions-based approach" to encourage lower polluting cars.

The specific proposal follows the Treasury's preferred option from the consultation period, and cars will be placed in one of two capital allowance pools according to their CO2 emissions.

Cars whose emissions are above 160g/km receive a lower allowance, while 100% first-year allowances will continue to be available for cars with CO2 emissions not exceeding 110g/km.