PART 11C

EMISSIONS-BASED LIMITS ON CAPITAL ALLOWANCES AND EXPENSES FOR CERTAIN ROAD VEHICLES

Overview

This Part provides for a scheme of capital allowances and leasing expenses for business cars based on the level of CO₂ emissions from the cars concerned.¹ Section 19 of Finance Act 2019 revised downwards the emissions thresholds on which capital allowances and leasing expenses are based. Section 14 Finance Act 2020 made some technical amendments to the scheme as a result of the introduction of the new EU emissions testing regime from 1 January 2021. The definition of CO₂ emissions in section 380K and the category references which determine eligibility for capital allowances and leasing expenses were updated.

Cars are categorised by reference to CO₂ emissions. There are effectively 3 groups of cars to which different capital allowances arrangements apply:

• The first group covers cars with emissions of up to and including 140 grammes of CO₂ per kilometre driven. For cars in this emissions range, the car value threshold or limit of €24,000 applies regardless of the cost of the car. This means that in the case of low emissions cars, capital allowances of €24,000 are available even if the car costs less than that.
• The second group is for cars with emissions of over 140 grammes and up to and including 155 grammes of CO₂ per kilometre driven. Cars in this emissions range qualify for allowances of either half the car value threshold of €24,000 or half the cost of the car, whichever is the lower. This means that cars in this range get capital allowances of a maximum of €12,000 no matter how expensive they are.
• Cars with emissions of over 155 grammes of CO₂ per kilometre driven get no relief at all.

Capital allowances are spread over 8 years at the rate of 12.5 per cent per annum.

For leasing expenses, cars in the lowest emitting group benefit from a proportionately higher deduction than the actual leasing expenses where the cost of the car is less than €24,000. Cars in the second group get half of the leasing expenses incurred where the cost of the car is €24,000 or less or, for cars costing over that amount, the leasing expenses are reduced in the proportion which half the specified amount bears to the cost. Cars with emissions of over 155 grammes of CO₂ per kilometre driven get no deduction for leasing expenses. These expenses are allowed over the period of the primary lease, (section 380M).

Finally, provision is made to address circumstances in which a car which had been leased is ultimately acquired by the lessee (section 380O) or where a car reverts to the original owner having first been the subject of a hire purchase agreement (section 380N).

Cars acquired for short term hire, such as taxis, car rental etc., are outside the ambit of these provisions, (section 380P).

380K Interpretation and general (Part 11C)

Summary

Capital allowances and leasing expenses for business cars are based on the level of a car’s CO² emissions. Cars are categorised by reference to CO² emissions. The categories are effectively divided into 3 groups to which different arrangements apply. Section 19 Finance Act 2019 revised the emission thresholds downwards so that cars with CO² emissions greater than 155 grammes(g) per kilometre(km) driven do not qualify for capital allowances or leasing expenses². Cars with CO² emissions greater than 140g/km up to and including 155g/km driven qualify for capital allowances based on the lower of half the specified amount or half the cost of the car. In relation to leasing expenses, cars in this latter group get half of the leasing expenses incurred where the cost of the car is €24,000 or less or, for cars costing over that amount, the leasing expenses are reduced in the proportion which half the specified amount bears to the cost³. Section 14 Finance Act 2020 made some technical amendments to the scheme as a result of the introduction of the new EU testing regime from 1 January 2021. The definition of CO² emissions was updated, and the vehicle category references A, B, C, D, E, F and G were revised to A, B, C, D, E and F.

The regime, as amended by Finance Acts 2019 and 2020, applies to expenditure incurred on the provision or hiring of a car on or after 1 January 2021. However, the amended regime does not apply to leasing expenses where the lease was entered into before 1 January 2021 provided the first payment under that lease was made prior to that date⁴.

The capital allowances are spread over 8 years at the rate of 12½% per annum.

Details

(1) Private passenger-type cars are identified as the target of these provisions and Part 11, which provided for the scheme up to 1 July 2008, is disapplied.

A business can choose to avail of either the Part 11C provisions or accelerated capital allowances for fuel-efficient cars under the scheme for energy-efficient equipment in section 285A⁵.

(2) Various categories of car (A to F) are defined to which the provisions apply. These categories are based on CO₂ emissions as set out in the Table to the section and by reference to the relevant emissions certificate.

(3) Where the Revenue Commissioners are not satisfied with the accompanying documentation or where there is no documentation, then the vehicle is deemed to be in Category F, in respect of which no deduction is allowed.

(4) The “specified amount” is defined as €24,000 for an accounting period or basis period ending on or after 1 January 2007, “CO₂ emissions” as the vehicle emissions measured in accordance with the relevant EU Council Directive, and vehicle “registration certificate” by reference to the relevant EU Council Directive and/or Commission Regulation.

(5) This Part is construed together with Part 9.

Relevant Date: Finance Act 2021