Hello all,
Quick question, if your car is used mainly for the business can you claim car tax as a business expenses? I assume the car would have to be classed as an asset of the business and depreciated etc
Would it also apply to servicing and mot costs?
Thank you.
Replies (11)
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The basics
You can claim for the cost of the vehicle, and running costs, or, you can claim for business mileage. Running costs includes fuel, insurance, road tax and repairs.
If you claim running costs, you must disallow any private use for tax purposes. You cannot change the method of claim from year to year, unless you change the vehicle, too. If you are a sole trader and VAT registered then you must use the running costs method, and then you have to be aware of fuel scale charges if reclaiming VAT on private fuel. Mileage is usually the best method if a limited company, and however you trade, VAT is reclaimed on the fuel element of the business mileage payment.
If you can choose either method, do the calculations first, and see which is the most tax efficient.
VAT registration threshold
"If you are a sole trader and VAT registered then you must use the running costs method" - HMRC say "You may calculate your motor expenses using a fixed rate for each business mile, provided that:
the annual turnover of the business at the time the vehicle is acquired does not exceed the VAT registration threshold" If you have voluntarily registered for VAT then you can still use mileage.
Road Tax (RFL) is just another motoring cost. If you are using the actual motoring costs as the basis of the Motoring Expenses amount in the accounts, then Road Tax should be included. Of course, the total motoring costs should be restricted for any Private Usage.
RFL
If we're being pedantic, it's Vehicle Excise DutyRoad Tax (RFL) is just another motoring cost.
VAT & mileage claim
A few years ago a client received a VAT inspection. The inspector concerned was at the strict end of the scale but we got on OK (don't take this as a self character reference!).
Towards the end of the visit he was looking at director's mileage claims - usual 40p (at the time)/25p touch, against which the client wasn't claiming VAT. The inspector advised that VAT could be claimed on the fuel element of the rate applicable to the vehicle, so long as associated receipts were kept suitable for tax purposes.This was confirmed in the feedback correspondence to the client.
Was the inspector incorrect or have the rules changed?
VAT & mileage
Thanks for concurring Peter.
Forgive me if I'm suffering from post SA fogginess but (with reference to earlier postings) am I correct in summarising that for sole traders who are already above the threshold at vehicle acquisition, the mileage method is a no no but for ltd its OK? If so, do you know the reasoning behind the differing treatments?
Sorry again if I'm being a bit slow today!
Steve
Different situations
If the employee of a company (including a director) uses their own car for company business then the company can pay a mileage allowance. The company and the employee are two different legal entities.
Where there is a sole trader, then there is no legal difference between the individual and the sole trader and the cost apportionment basis should apply. However to simplify record keeping for the smaller buiness, HMRC have accepted that using a mileage allowance is an acceptable compromise. If the sole trader has an employee, then the employee can be paid a mileage allowance without restriction.
Running costs are usually better anyway
The mileage rates were frozen for so long (until the rise to 45p last year) that most sole traders and partnerships are now better off claiming a proportion of the running costs, especially as they can then claim capital allowances.
Consequently, the point about not being able to claim mileage above the VAT threshold is usually moot.
Depends on the mileage though. With very high mileage you might be better off with the 45p/25p as most of the other costs are fixed (apart from the fuel obviously).
Directors of owner-managed companies can only claim mileage of course, unless a company car works out better for them, which it surprisingly does sometimes, especially if they make capital contributions or only pay basic rate tax.
Chris