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Self employed motor expenses: T/O >£77k & 24 Month Rule

Self employed motor expenses: T/O >£77k & 24...

A new client who commenced trading in February 2011 and did his own 2010/11 tax return. Turnover for the 7 week period to 31/03/11 was £15k. Turnover for the year ended 31/03/12 is £100k. In his 2010/11 tax return he processed motor expenses on a mileage basis.

As his turnover is >£77k (and it would have been reasonable to expect it to be so from Day 1) should he have processed motor expenses on an actual basis? Should he continue to account for motor on a mileage basis until he changes vehicle or does the 2010/11 tax return need to be resubmitted using actual costs?

Secondly, he only has 1 client and it appears to me that he travels to the same site every day. He does have an office at home but it looks to me like he spends 90%+ of his time on site. Does the 24 month rule apply? If i am correct, from February 2013 he will have been travelling to the same site for 24 months. Furthermore, if this was expected to be the case from Day 1, should NO motor costs have been claimed from Day 1?

Any answers to the above queries greatly appreciated.

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06th Dec 2012 19:23

This is from the HMRC manual:-

Who may use a mileage rate?

Taxpayers can compute their expenses using a fixed rate per business mile if the annual turnover of their business is less than the VAT registration threshold when they first use the vehicle.

We use the VAT registration threshold as a convenient limit whose real value is regularly reviewed. Our practice has no application to VAT accounting and does not affect existing VAT rules and practices. The use of the VAT registration threshold may be reviewed if there is an increase in the threshold substantially in excess of the rate of inflation.

Taxpayers can only use the mileage rate basis if they apply it consistently from year to year. They can only change to or from an ‘actual' basis when a vehicle is replaced.

If the turnover of the business increases and exceeds the VAT registration threshold, then the taxpayer should continue to use the mileage rate basis until the vehicle is replaced.

If there is a change in the VAT threshold, then the taxpayer should continue to use the same basis until the vehicle is replaced.

 

So to answer your question, as he was below the VAT limit when he regisitered, he can claim using this method, until the vehcile is changed.

 

I think you may have an issue with them trying to argue home to work, though, due to it's long term nature!

 

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