Can I claim?
The purchase of a vehicle used in your business is an allowable (capital) expenditure and can be deducted from your earnings. However, to qualify as ‘allowable expenditure’, it must be 'wholly and exclusively' for carrying out and earning the profits in your business. So, if you use it to get from your home to your office, you cannot claim these journeys as business use. However, visiting clients is a valid business travel, including journeying from your home directly to your client.
Private use is ‘non-allowable expenditure’; you can't get tax relief for taking a detour to drop off at the shops for your groceries for instance. This mixed vehicle use means that you can declare part the cost of the vehicle by calculating the real business percentage of its usage.
You have the following option:
- Capital expenditure: “Self-Employed - Expenses - Car and Other Vehicles - Purchase of Car”
For example, if you purchase a car for £20,000 and only use it in your business 20% of the time you can deduct £4,000 of the cost in your tax return.
Being a V.A.T. registered business means that generally you can't reclaim the V.A.T. when you buy, import, or in some other way acquire a car. There are some exceptions to this, however. You can reclaim all of the VAT if you meet one of these conditions:
- The car will be used exclusively for business purposes and you can show that it's not available for private use by your employees or anyone else. For example, your employee’s contract of employment excludes private use including travel from home to the place of work.
- You intend to use the car mainly as a taxi, a driving school car or a self-drive hire car.
- You're a car dealer and the car will be part of your 'stock in trade',which you intend to sell within the next 12 months.
For businesses requiring large yearly mileage, it is advantageous to opt for the ‘standard mileage’ rates, rather than the ‘capital expenditure’ (with fuel, servicing and other vehicle related expenses). You will need to keep a record of the number of miles you travelled for business with the ‘standard mileage’ system, but you do not need to keep track of your vehicle running and repair costs.
If you do use flat rates for a vehicle, you must stick with this as long as you use that vehicle for your business.
If you have already claimed capital allowances for a vehicle, you cannot use the mileage rate for it. However, fuel, servicing and other vehicle related expenses, such as insurance can be eligible deductions for tax purposes.
Mileage allowances on SimpleTax
You will need to calculate the mileage allowance amount and enter it at “Self-Employed Expenses - Car and Other Vehicle - Other”
SimpleTax makes it easier for you to work this out. With our simplified system, you just need to input the purchase value of your vehicle and the personal usage percentage. All your calculations are then done automatically with our H.M.R.C. recognised software.
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