Cars are classified as machinery. These would not qualify for annual investment allowance (AIA), as they fall within the general exclusion 2 in CAA 2001, s.38B.
AIA may be available on the purchase of dual control vehicles as they do not meet the definition of a car in CAA 2001, s.268A.
“Cars” in CAA 2001, s.268A applies to:
A “mechanically propelled road vehicle other than–
- a motorcycle,
- a vehicle of a construction primarily suited for the conveyance of goods or burden of any description, or
- a vehicle of a type not commonly used as a private vehicle and unsuitable for such use.”
Therefore, if the vehicle is not commonly used as a private vehicle and is unsuitable to be used as a private vehicle, it will not fall within the definition of a “car” for capital allowance purposes.
HMRC confirms in CA23510 that vehicles that are ‘used in a driving school’ and ‘fitted with dual control mechanisms’ would not be treated as cars following the decision in Bourne v Auto School of Motoring (Norwich) Ltd 42TC217.
Where a sole trader uses an asset partly for the purpose of the qualifying activity, and partly for private purposes, the allowances must be reduced (CAA 2001 s.205). Therefore, the AIA or WDA claimed would be reduced by the 20% private use proportion.
If the vehicle is purchased outright, AIA or WDA can be claimed in the period in which the unconditional obligation to pay arises which is usually the delivery date– CAA 2001, s5. In the event that this vehicle is bought under a hire purchase agreement, allowances can be claimed on the payments that have not been made yet in the period where they have started to use the vehicle – CAA 2001, s67(3).
In conclusion, the driving instructor can claim AIA on the dual control vehicle as it does not meet the definition of a car. It does not matter if the dual control vehicle was bought brand new, or second hand, or if it is electric, as it simply is not a “car”. The private use will mean there is a reduction in the overall allowance that is available.
For guidance on capital allowances and cars, see Direct Tax In-Depth at 238-500.
