Flat rate mileage PLUS interest on loan to purchas

HMRC webinar doesn't cover this?

Didn't find your answer?

Please forgive this 'stupid' question - I have Friday night brain after a challenging week. But I figure most of you will have an immediate answer & put me out of my misery! 

I'm attempting to put together a SIMPLE resource for a group of sole traders on car expenses who all want to maximise claims & minimise tax - understandably so. So, I just forced myself to watch the HMRC webinar on 'car expenses for the self-employed' to make sure I'm up to date & can confidently quote the facts (& argue with those who have only ready some of the web pages & think they can claim every penny for everything!).

The presenter stated that when using flat rate mileage you can ALSO claim interest on a loan to purchase said car. (I understand this is different to claiming interest on finance PCH / PCP, that requires actual cost method regardless).

BUT the webinar did not clarify (unless I was asleep) - & I assume here - that it is only business use % OR how to work that out. I am assuming (but cannot find any confirmation) that in order to do this you would have to keep a full mileage log (in the same way you do for claiming actual expenses) & charge that %?

I mean, this is logical, right? But I'm doubting myself that this is the way? Thank you for anyone who is kind enough to reply. 

 

Replies (23)

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By David Ex
09th Jun 2023 20:25

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim75005

Interesting point re loan interest. Never thought about it but relief for business use proportion would make sense - I think. Someone more knowledgeable will no doubt give a better informed response.

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By Hugo Fair
09th Jun 2023 20:42

"The presenter stated that when using flat rate mileage you can ALSO claim interest on a loan to purchase said car" ... I have to say that this surprises me (as it runs counter to the simple line I was always fed 'that flat rate mileage covers *all* the motoring costs').

Of course that's easier to understand within the employer/employee scenario where the latter is providing (and maintaining) the vehicle even though some mileage is for business - and I'm not so versed in the sole trader environment.

OP could perhaps try https://www.gov.uk/simplified-expenses-checker ... and see if that uncovers such aspects as interest. [Sorry, but it's a warm Friday and dinner is calling].

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Replying to Hugo Fair:
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By tracey2412
11th Jun 2023 12:04

I was surprised too - even went back & listened again to be sure I heard correctly. However though they went on to show very comprehensive examples of both flat rate & actual costs including balancing charges / allowances over a number of years, at no time did they include a calculation for the business part of loan interest in the flat rate expense example.
The hmrc 'checker' omits to mention this at all, hence why I think we mostly all believe that the 45p is to include everything inc. purchase costs - however that is financed. Hence why I was asking to pick the brains of this fine collective !

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By possep
09th Jun 2023 21:09

From memory years ago PAYE could claim AMR and finance cost but that changed to AMR only although I understand S/E can claim AMR and finance. I am 100% sure the S/E finance claim, reduced if private mileage, is OK. It's only maintenance , RFL, insurance etc that is inclusive in AMR. Parking and toll charges are not covered by AMR. As it's a Friday night I am not researching this but I believe this to be correct.

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Replying to possep:
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By tracey2412
11th Jun 2023 12:06

Gosh, absolutely would not expect anyone to research this on my behalf, whatever day of the week it is! Thank you for replying. You have supported my assumption so maybe I'm not completely losing my marbles !

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By taxdigital
10th Jun 2023 09:38

I think the confusion as to whether interest will be allowed as a deduction whilst claiming the flat rate allowance is because of how s.94D is worded: “(6)In this section “qualifying expenditure”, in relation to a vehicle, means any expenditure incurred in respect of the ACQUISITION, OWNERSHIP, (emphasis added) hire, leasing or use of the vehicle, other than incidental expenses incurred in connection with a particular journey”

In my view interest costs incurred on a loan taken out to buy a car for business purposes should be allowed as a deduction applying s.29+s.34 ITTOIA. Where there is a private use an apportionment will apply.

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Replying to taxdigital:
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By tracey2412
11th Jun 2023 12:07

thank you for copying that quote to explain what now seems to be the accepted & allowed position.

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By frankfx
10th Jun 2023 10:01

https://www.taxationweb.co.uk/tax-articles/general/motor-expenses-and-mi...

Good article to consume whilst downing a Pimms on this sun drenched day.

Should help you frame your advice for clients.

are you going to prepare a spread sheet for clients to use?

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Replying to frankfx:
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By Hugo Fair
10th Jun 2023 13:14

Fascinating (with or without the Pimms)!

It starts where I started but doesn't give up, as I did, and follows up all the side-alleys and confusions over the last 20+ years.

It's certainly clear as to what HMRC *wants* everyone to believe, but with more than a suggestion of trickery (even deception) by them in reaching that point.

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Replying to frankfx:
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By tracey2412
11th Jun 2023 12:17

OMG! I just scan read the article & will need to carefully read it again as I'm getting the feeling it's up to claimant whether they do or don't as the position is very unclear. Old guidance says interest on loan can be claimed, new guidance removes that specific wording but doesn't say it can't be claimed. I thin I'm going to need something stronger than Pimms to get my head around this & then put it in terms for sole traders to understand (though the group I'm currently helping are all vets, so generally intelligent & clever).
And yes I will attempt to create a spreadsheet of some kind (very simple, I'm no excel wizard) to try & be helpful to those s/e trying to work out what's most beneficial for them.

As a caveat when asked - can I claim xyz? - I ALWAYS quote 'wholly & exclusively' & if it's a grey area & the s/e thinks they should be able to claim, I tell them that IF ever challenged, be prepared to justify & explain & if HMRC disagree you may be subject to interest & a penalty. Can I say fairer than that?

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By taxdigital
11th Jun 2023 21:43

Expanding on my previous post:

The legislation:

This piece of the legislation (s.94D) was originally inserted to FA 2013 exactly 10 years ago. Nothing has changed ever since. The legislation defines “qualifying expenditure”, in relation to a vehicle, to mean “any expenditure incurred in respect of the acquisition, ownership, hire, leasing or use of the vehicle”. Going by the dictionary meaning, “expenditure incurred in respect of the acquisition” will be taken to mean the capital spend, which is clearly excluded since s.94D(7) denies a capital allowance claim where a fixed rate allowance has been claimed. HMRC’s technical note published on 28 March 2013 says on page 5 that “simplified expenses are fixed allowances for business mileage (rather than deductions for ACTUAL EXPENDITURE ON PURCHASING (emphasis added), maintaining and running a motor vehicle”. Actual expenditure incurred on purchasing the asset should surely be about the cost of acquisition.

https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

This gives the impression that the interest cost was never part of the equation in working out the fixed rate allowance.

Interest deduction

Interest is clearly not an “expenditure incurred in respect of the acquisition”; it is the cost associated with choosing a particular mode financing the acquisition, i.e. loan. Interest incurred on a loan used for buying an asset used for the purpose of business should, therefore, be allowed as a deduction applying the general w+e rules: Hence my reference to s.34.

Approved mileage allowance generally

As fuel costs hit the roof after Russia invaded Ukraine, a petition was moved asking for a review of the annual mileage allowance. Though not directly related to s.94D, the petition is of relevance as the rate being the same at 45p. The government response to the petition offers some clue. The government response was that “the Approved Mileage Allowance Payment (AMAP) rate aims to reflect running costs including fuel, servicing and depreciation. Depreciation is estimated to constitute the most significant proportion of the rate, with fuel constituting around a third of total costs included in the rate”. Again, there is no reference to interest costs. It cannot be the case that HMRC used one calculator for arriving at 45p for the AMAP legislation and another one for s.94D.
https://petition.parliament.uk/petitions/600966

So, again, it looks as if the intention behind fixing the 45p was not to deny a deduction for interest costs incurred in financing the vehicle purchase.

Now looking at the piece in Taxationweb linked above.

HMRC manuals

HMRC manuals don’t have the force of law. HMRC say their manual contains technical guidance for HMRC staff, are not comprehensive and do not provide a definite answer in every case. They disowned their own manuals then in 2010 (Hanover Company Services Ltd v HMRC UKFTT 256 (TC) and 12 years later in 2022 (Daniel Ridgway v HMRC [2022] UKFTT 00412 (TC). To that extent HMRC have been quite consistent in disowning their manuals. So, the public law argument based on legitimate expectation of what is contained in HMRC manuals may be non-starter.

In relation to HMRC’s change of heart, in removing the specific reference to interest deduction, I can only speculate. HMRC U-turns are nothing new. After saying Yes for quite a few years HMRC suddenly took a clear U-turn way back in August 2014 saying No to loans secured against offshore income and gains and remitted to the UK, which in their view attracted a tax charge thereon! The overnight U-turn presumably was on the basis of advice received from their solicitors who had a very late realisation that the previous position was against what the law intended.

As one US treasury secretary once told their EU counterparts some 50 years ago “the dollar is our currency, but it’s your problem”. Similarly, HMRC manuals are their manuals, but they are our problem!

So, ‘to claim or not to claim is the question, my answer is yes, up until I find better arguments against it.

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Replying to taxdigital:
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By tracey2412
12th Jun 2023 09:06

WOW! that's a very detailed & considered reply, thank you so much!

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Replying to Tax Dragon:
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By tracey2412
12th Jun 2023 09:08

thank you - that makes it very clear
(notwithstanding reply above that states manuals aren't law etc. etc.)

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Replying to Tax Dragon:
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By tracey2412
12th Jun 2023 09:15

thank you - that makes it very clear
(notwithstanding reply above that states manuals aren't law etc. etc. but I'm sure none of us wants to debate that this early on a Monday morning!)

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By tracey2412
12th Jun 2023 09:16

EDIT: thankyou to everyone who kindly replied & gave such detailed replies over the weekend. THIS is the reason for this forum & I'm grateful.
I now believe I have sufficient information for the purposes I need it, to provide answers & options to the group who are asking. Thanks again!

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Replying to tracey2412:
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By jonharris999
12th Jun 2023 12:38

There once was a time, long ago,
When accountants would answer, all slow;
Now AI's on the scene
And it answers so clean
That the humans can pour Pimms and go.

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Replying to jonharris999:
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By tracey2412
13th Jun 2023 12:46

that's very good - have you considered a change of career! :)

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Replying to tracey2412:
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By jonharris999
13th Jun 2023 16:58

I am straying across the territory of several threads here, but - ChatGPT wrote it. Or at least most of it. I slightly edited (ahem - improved) it.

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Replying to jonharris999:
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By tracey2412
14th Jun 2023 11:17

Your honesty is admirable! LOL! But I still think it's quite good, even if a robot did write most of it!

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By Mike Aldridge
14th Jun 2023 16:25

So, to extend the issue just a little. I have a client who recently entered into a contract hire agreement for a car which is used almost exclusively for his business. To date, I've been allowing the 45p and 25p deductions for mileage based on his daily mileage log. Are we now saying the business mileage proportion of his contract hire charges are allowable too?

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Replying to Mike Aldridge:
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By tracey2412
14th Jun 2023 18:06

if he's a sole trader, the webinar seems to suggest that you can claim flat rate mileage PLUS business % of the interest on a loan to purchase a car.
If I understood correctly, any other kind of finance arrangement (PCP, PCH, HP) can only be claimed if using actual costs at the same % of the other costs. Hence my confusion & reason for the post.
Here's the webinar link if you have the inclination:
https://register.gotowebinar.com/regi.../2184217661813034845

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Replying to Mike Aldridge:
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By Hugo Fair
14th Jun 2023 21:56

"Are we now saying the business mileage proportion of his contract hire charges are allowable too?"
No, that's not what anyone else has said.

Whole thread has been about *interest* (on a loan) ... nothing to do with contract hire (or other similar) charges.

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