Tax relief on farm vehicles for farming partnerships and sole traders

By Dan Cozens, Accounting Manager, Armstrong Watson

Following the Government’s recent U-turn on the tax treatment of Double Cab Pick Ups (DCPU), it’s worth reminding ourselves of the tax relief available on vehicles in a farming business.

U-turn on Double Cab Pick Ups 

The Government had introduced guidance that all DCPUs would be classified as cars rather than commercial vehicles from 1 July 2024. However, having listened to the views of farmers and other industries, the guidance was quickly reversed, meaning DCPUs with a payload of one tonne or more would still be classed as commercial vehicles and those with a payload of less than one tonne would continue to be treated as cars for tax purposes.

Agricultural vehicles

Vehicles such as tractors and quad bikes continue to qualify for Annual Investment Allowance (AIA). The AIA allows the business to deduct the total value of the qualifying purchase from their taxable profits in that tax year up to the current limit of £1 million.

Commercial vehicles

Commercial Vehicles such as Single Cab Pickups and DCPUs with a payload of one tonne or more will continue to qualify for Annual Investment Allowance as above, providing the asset is used for 100% business use.

Where the asset has a mix of business and private usage the business may only claim the business element of the AIA. For example, if a farmer purchases a DCPU for £25,000 and its use is 50% business and 50% private – only £12,500 (50% of purchase price) would be allowable to deduct from their taxable profit.

Cars

Cars do not qualify for the AIA, instead, there are other capital allowances available based on carbon dioxide emissions:

• New and unused with CO2 emissions of 0g/km – 100% first-year allowance
• Second-hand electric car – 18% of the car’s value
• Cars with CO2 emission of 50g/km or less – 18% of the car’s value
• Cars with CO2 emissions over 50g/km – 6% of the car’s value

As for commercial vehicles, any car that has private use would require a private use adjustment, reducing the amount of capital allowances available.

For the majority of cars, there is little tax relief in the year of purchase with most of the relief deferred until the vehicle is sold. The capital allowances are claimed over the useful life of the vehicle leaving the tax written down value (TWDV). On the sale of the car, if the value is lower than the TWDV, the difference, known as a balancing allowance, can be offset against taxable profits. Equally, if the car sells for more than the TWDV, a balance charge is incurred which effectively takes back some of the tax relief claimed in earlier years.