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We have put together a summary of the tax treatment of commercial vehicles below.

What is classified as a commercial vehicle?

A commercial vehicle is classed as one which:

  • Its main purpose is to transport goods/materials or paying passengers.
  • Has a payload of more than one tonne after seats and have a dedicated load area that is larger than the passenger area.

What is the First Year Allowance (FYA)?

FYA is a tax allowance that allows businesses to deduct between 6% and 100% of the cost of qualifying capital expenditures made during the year the equipment was first purchased. This rule applies to business and commercial vehicles, zero-emission vehicles.

The First-year allowance (FYA) rules for business expenditure on business cars, zero-emission vehicles and equipment for gas refuelling stations are being extended from April 2021 to April 2025.

This measure also reduces the CO2 emission thresholds, which are used to determine the rate of capital allowances available for business cars. They are the following:

Until 31 March 2021:

CO2 > 110g/km = special rate pool (6%)
CO2 51-110g/km = general pool (18%)
CO2 <51g/km = 100% FYA only if the car is new/unused (otherwise 18% in the general pool)

From 1 April 2021:

CO2 > 50g/km = special rate pool (6%)
CO2 < 51g/km = general pool (18%)
CO2 0g/km = 100% FYA only if the car is new/unused (otherwise 18% in the general pool)

Why are there tax breaks for these vehicles?

  • It encourages businesses to move away from CO2 emitting cars.
  • Supports the government’s strategy to end sales of new petrol, diesel and hybrid cars/vans by 2035 or earlier.

What this means:

  • For the FYA for 0-emission goods vehicles, the legislation will have effect from 1 April 2021 for businesses chargeable to corporation tax.
  • For businesses chargeable to income tax, it will have effect from 6 April 2021.
  • For the reduction to the business cars CO2 emission thresholds together with the FYA’s for low CO2 emission cars and equipment for gas refuelling stations, the legislation will have effect from 1 April 2021.

Business cars:

  • The 100% FYA will only be available for the purchase of new electric cars, or cars that have zero CO2 emissions.
  • Writing Down Allowance (WDA) at the main rate (18%) will only be available for cars with CO2 emissions not exceeding 50g/km.
  • WDA’s at the special rate (6%) will be available for cars with CO2 emissions exceeding 50g/km.
  • There is no change for businesses with expenditure on zero-emission goods vehicles and equipment for gas refuelling stations.

If you need further help and advice on the tax treatment of commercial vehicles please contact our specialist tax Partner, Ann Bibby at abibby@ellacotts.co.uk or 01295 250401.