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.

Section 33 Finance Act 2024 further reduced the emissions thresholds on which the capital allowances and leasing expenses are based. This change will apply to expenditure incurred from 1 January 2027.

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. From 1 January 2027 this group is limited to cars with emissions of up to 120 grammes of CO₂ per kilometre driven.
• The second group is for cars with emissions of over 140 grammes and up to and including 155 grammes of CO₂ per kilometre driven. From 1 January 2027 this group includes cars with emissions of over 120 grammes and up to and including 140 grammes of CO₂ per kilometre driven.
• The third group includes cars with emissions of over 155 grammes of CO₂. From 1 January 2027 this group includes cars with emissions of over 140 grammes of CO₂ per kilometre driven.

For the purposes of capital allowances, cars in the first group have a car value threshold or limit of €24,000 which 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.

Cars in the second group 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 the maximum capital allowances available for cars in this group is €12,000.

Cars in the third group do not qualify for capital allowances.

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 in the third group get no deduction for leasing expenses. These expenses are allowed over the period of the primary lease, (section 380M).

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).

Where expenditure was incurred or a lease was entered into before 1 January 2021 and the first payment under that lease was made prior to that date, the provisions of the regime as introduced by Section 31 Finance Act 2008 apply.

Where expenditure was incurred or a lease was entered into after 1 January 2021 and first payment under that lease was made prior to that date, the provisions of the regime as amended by Finance Act 2019 and Finance Act 2020 apply.

Where expenditure was incurred or a lease was entered into after 1 January 2027 and first payment under that lease was made prior to that date, the provisions of the regime as further amended by Finance Act 2024 apply.

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. This section categorises cars by reference to CO2 emissions. Based on these categories sections 380L and 380M effectively divide cars into 3 groups to which different capital allowances and leasing treatments apply.

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 previous vehicle categories A, B, C, D, E, F and G were revised to A, B, C, D, E and F.

The emission categories as amended by Finance Act 2020, apply 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 date².

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 285A³.

(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.

As amended in Finance Act 2020, the categories are:

• Category A up to and including 120g/km,
• Category B more than 120g/km up to and including 140g/km,
• Category C more than 140g/km up to and including 155g/km,
• Category D more than 155g/km up to and including 170g/km,
• Category E more than 170g/km up to and including 190g/km,
• Category F more than 190g/km.

(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 2024