Tax relief on new car

medicman

Hi all

Just wondering if anyone could advise me on the most tax efficent way to purchase a new car. My situation is that in this tax year my income will be derived approx. 90% from self-employed work and 10% from employed work. I am keen on buying a new car and do a lot of mileage up to 25000 p.a. I've heard that it is possible to get 100% tax relief on the cost of a new car if the co2 emissions are below 120. is that correct? Am I correct in assuming that as my income is 90% self-employed if eg) I buy a car for £13000 then I would be able to claim back 40% of £11700 (90% of £13000) against tax assuming I buy and register the car before 31st March 2009.
From next tax year things could change quite a lot for me. I may end up deriving my income approx 80% from employed work and 20% from self-employed work. Would I then have to repay any of the tax I have saved? If I part-ex my old car would that make a difference t the calculations?

Sorry for asking...just very confused!!

clipboard2

Hi medicman,

Here is the 100% capital allowance scheme on low CO2 emission cars you are thinking of:

http://www.hmrc.gov.uk/manuals/camanuals/CA23153.htm

Sadly, as you can see (unless HMRC has a fresh scheme which they have not published yet!), you are too late. The "green car" sceme, designed to encourage businesses to invest in environmentally friendly vehicles, ran from 17 April 2002 to 31 March 2008.

As you are both self-employed and employed, I'd strongly advise you to use a Chartered Accountant, as tax in your situation can be a minefield - I've been there! Also, a quality C.A. should alert you in good time to any relevant new tax-saving schemes in good time for you to take advantage of them in future.
Good luck! CB2

medicman

Thanks clipboard2. I found this link from the HMRC website. Does this alter things in your view ie. the same savings can be made but only on cars with emissions less than 110?

http://www.hmrc.gov.uk/budget2008/bn11.pdf

clipboard2

Hi medicman,

Well spotted! Yes, it's the same scheme - but much more restricted - far fewer cars qualify. I'd guess most might be too small for the needs of the average businessperson...

Here's the site to check if the car you are interested in qualifies:

www.vcacarfueldata.org.uk

This is how the system works (from my accountant):-
To qualify, for the 100% capital allowance, all you have to do is ensure that you register the car at time of purchase as a 'business vehicle' for use in your named business, which is registered with HMRC/Companies House.

You can then claim back your allowance at the highest tax rate you pay that tax year, for the 1st year you own the car.
For example, if you buy a new car costing £10,000, and you are a higher rate (40%) tax payer, you can reclaim 40% of the cost, i.e £4,000 back from the tax man.

I used this sites links and googled to find the best internet price for my chosen car. I bought a Peugeot 207 (120gm/Kg), and for that car, www.drivethedeal.com was cheapest. But I had to wait 4 months for delivery!
You could also just negotiate with car dealers in the North and Midlands directly -they seem much more willing to lower their price than London/South east dealerships!
CB2

jimmo

Hi medicman
I rather think you need to be careful with this.
It is a number of years since I dealt with Capital Allowances “on the front line” so I could be way out but you need the cons as well as the pros.
In your circumstances your car will probably be used for 3 purposes.
1 Use in your (self employed) business.
2 Use in your employment.
3 Private use.
You need to remember that private use includes commuting to work.
You can claim a 100% First Year Allowance in respect of your (self employed) business only.
So your idea of claiming 90% will probably be wrong because it does not take account of private use.
Next year, when you switch your earnings to 80% employment 20% self employment then whilst this link http://www.hmrc.gov.uk/manuals/camanual/CA23240.htm
May not exactly fit the bill there is a real danger that you will have a “Disposal Event“.
Then you will have a balancing charge which will be added to your income from self employment.
I rather think you need professional advice.