The Pre-Budget Report has clarified the future tax relief available on the purchase of cars and motorcycles.

Cars purchased by companies from 1 April 2009 (and by unincorporated
business from 6 April 2009) will attract tax relief depending on the
vehicle's CO2 emissions:

• Up to 110g/km - 100% allowance in year of purchase
• Up to 160g/km - 20% deduction per year
• Over 160g/km - 10% deduction per year

Under this system it will take longer to achieve full tax relief for
the cost of a car, particularly for the higher polluting vehicles. When
a post March 09 car is sold the balance of the unclaimed cost remains
in the pool of business equipment to be deducted at the normal rate of
10% or 20%. So full tax relief is not given even though the car is no
longer owned.

Currently, on the disposal of a car that cost over £12,000 the
unrelieved purchase cost is claimed as a balancing allowance. Cars that
are acquired before 1 April 09 will continue to attract a balancing
allowance on sale for a transitional period of five years. After 31
March 2014 all pre-April 09 cars will be added into the relevant pool
for business assets. Therefore, if looking at purchasing this type of
car, it could be advantageous to purchase before April.

Cars used by partnerships and sole-traders will attract tax relief
at the same rates as for company owned cars. However, a balancing
allowance will still be available on sale where the car has been used
privately by the business owner. So ensuring some private usage may be
beneficial.

From April 2009 all motorcycles purchased by businesses will qualify
for the Annual Investment Allowance, which will normally give 100%
deduction in the year of purchase.