The scrappage scheme launched on 18 May 2009 could be an ideal opportunity to trade in an old car or van and get a substantial discount on a new model. The scheme will run until March 2010, or until the funding set aside for the Government discount of £1,000 per vehicle runs out. The participating manufacturers are also giving a discount of £1,000 per vehicle, so the customer benefits from a total a reduction in the list price of £2,000.
Businesses as well as private individuals can take part in the scheme, as long as the vehicle they offer for scrap has a valid MOT and was first registered in the UK before 1 September 1999. Vans qualify for this scheme if they weigh less than 3,500kg. The old vehicle must also be registered in the name of the person who trades it in, for at least 12 months before the registration of the new vehicle.
A new van will qualify for the 100% first year allowance under the Annual Investment Allowance, assuming the £50,000 cap has not been exceeded for the year. An electric car or car with emissions of 110gr/km or less will also qualify for a 100% first year allowance. Other new cars are allocated to the 10% or 20% capital allowances depending on whether the vehicle’s CO2 emissions are over 160g/km (see our newsletter 8 May 2008). Only the net price actually paid after the full £2,000 discount in taken into the capital allowance pool. The scrapped vehicle is treated as being disposed of for nil proceeds, not for the £2,000 discount.
The VAT position is complicated as only the manufacturer’s contribution of £1,000 is treated as a cash-back for VAT purposes (see VAT brief 08/07). The purchaser must reduce the VAT they reclaim in respect of the van by £130.43, which is 15/115ths of the gross £1,000 discount. The £1,000 Government subsidy does not change the VAT position. Businesses cannot normally reclaim VAT on new cars, unless the car is to be used as a taxi, driving instruction car, or for self-drive hire.
Companies considering buying a car which will have private use, should factor in the proposed increases in the car benefit charges proposed for the next two tax years. The percentage of list price used as the chargeable benefit will increase by one percentage point in 2010/11 and again in 2011/12. Also the £80,000 cap on the list price will be removed for all cars from 6 April 2011, which will produce some very high benefit charges for expensive cars.
Article by guest blogger: Mark Lee from The Tax Advice Network.
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