Car repair expenditure

Car repair expenditure

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My husband includes his actual motor expenses in calculating his business profits (ie doesn't use the mileage rates) and claims capital allowances on the car. He then makes a 10% private use adjustment to the capital allowances claim and adds back 10% of the motor expenses when calculating his taxable profits. We think 10% is reasonable as he does do a large amount of business travel.

Over the last few years he's had four accidents and his insurance premiums have steadily increased, meaning that he's had to accept larger insurance excesses.

All of the first three of his accidents occurred while he was on business journeys, and he included the payments that he had to make under his insurance excess (£2,500 in total) in his motor expenses and we added 10% back.

The fourth accident was in December 2011 and occurred while he was driving home from the pub after going out for the evening with some friends. Needless to say, he shouldn't have been driving and he mounted the pavement and hit a lampost; no damage to the lampost and the daft beggar was lucky it was a lampost and not a person.

The cost of the repair would probably have all been within the insurance excess and so he just went ahead and got it done, without putting it through the insurance.

We included the full cost (just over £1,500) in the his March 2012 accounts and added back the usual 10% as we should.

HMRC have since started an enquiry and they're saying that it should all be added back. None of it is for business purposes as the accident occurred when he was using the car for privately.

Is this correct? If it is correct, does it mean that we were wrong to add back the 10% for the previous three accidents that happened when he was using the car for business.

Replies (3)

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By sijolees
30th Apr 2013 13:26

The Revenue are wrong - when the accident occurred does not matter: it is the fact that the car needed repair that is important.

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By John - Horler Tax
30th Apr 2013 14:49

It's an interesting area

 

Technically the expenditure on a car isn't amorphous but consists of lumps of readily definable costs, some of which more clearly relate to one incident than others, such as the cost of an MOT that relates to the entire year, compared with the accident cost you referred to.

It's perfectly acceptable for HMRC to analyse expenditure in such a way, but also unusual in respect of a car, where they will normally look at the expenditure across the whole year.  As far as I am aware there is no statute that requires them to apply the same private use percentage to all the costs for the car.  For example how about the costs of insuring a car for three teenage drivers that is used 90% by a parent for business 5% privately by them and 5% privately by the teenagers, is it correct to allocate the cost of insurance as 90% business use?

That said, I'd still go back with 'You must be joking' and see where that got me.

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By Anna Lysing
01st May 2013 15:49

Thank you both

I'll see where the you must be joking approach gets me John.

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