Car Capital Allowance For Self Employed

Drives_Too_Much

Hi,

Does anyone know what the rules are for offsetting some of the costs of purchasing a car against tax if you are self employed (sole trader). I've always just claimed my 40p/25p mileage allowance but apparently you're allowed to claim something for the capital cost too. Can anyone shed any light on this?

I bought my car on 31/12/2007 for £4900. I do over 50,000 miles a year, 99% of that business.

cheers

minnie123

You can only do one or the either - a) claim by mileage or b) claim all your fuel and other motor expenses and also a percentage of the cars purchase price as a capital allowance.

You can change from one to the other but normally only when you purchase a different car.

toby_puppy

Hi - the capital allowance you mention is on another part of the tax return - you could claim 25% as a writing down allowance - ie. £4900 x 25% = £1225 then next year you would start off with a written down value of £3675 and claim 25% and continue each year in that way.

The capital allowance is in effect deducted from your taxable profit, ie if you had a profit of 11225, you would claim the capital allowance of £1225 and pay tax on a profit of £10000 if that makes sense. So, it's not an expense - it just reduces the amount you pay tax on.

If you are saying 99% business, you would have to deduct 1% private use from the claim, in this case £1225 - 1% = £1212.75
They can be quite picky over private use if you are unfortunate enough to get investigated, usually see more of a 10% upwards private use, but if you can susbstantiate it then that's fine.

Hope this helps.

minnie123

You can't so it aswell as claiming mileage though - it's either one or the other.

toby_puppy

yes, just ensure you claim the mileage allowance only OR the actual car expenses and the capital allowance claim.

minnie123

You are normally only allowed to change when you change cars - but in my experience the mileage claim is normally more beneficial. Especially if you are doing 50,000 miles per year.

toby_puppy

minnie123 wrote: »

You are normally only allowed to change when you change cars - but in my experience the mileage claim is normally more beneficial. Especially if you are doing 50,000 miles per year.

I agree with minnie - probably on such a high mileage you are benefitting by claiming mileage allowance - it's always handy to review the situation when you next change your car as your situation might have changed, eg doing less mileage etc.

Drives_Too_Much

Thank you all.
If it's one or the other I'll stick with mileage. My friend who tipped me off on this is claiming both. That sounds like asking for an investigation. I'll give him a bell and warn him. Cheers

ceeforcat

If you are doing 50000 miles per year I would definitely not be going the mileage route - your car is depreciating faster as a result of this high mileage and I fear that you could be losing out. For example, if your car costs 12000, you can claim 3000 in the first year, 2250 in the second year and 1687 in the third. (Don't forget that, even if you only bought the car a few days before your accounts year end, you can claim a full years allowance for that set of accounts.) In this example you have claimed 6937 so far on the car leaving 5063 claimable. You now own a car with an original cost of £12000 with 150000 miles on it. If it is now worth less than £5063 you can claim the difference in Capital Allowances plus a full years Capital Allowances on any new car purchase. First rule of Capital Allowances - buy just before your year end!

In addition you can claim the tax, insurance and fuel costs as well as repairs which are likely to be higher in your case given the mileage. Simply add all of these up for the year and add back a reasonable amount for private use. If you wish to claim 1% (or anything under 10% in my opinion) expect your chances of being investigated to increase tenfold. Imagine - a full investigation of all your records, business and private just because you have claimed a little too much in motor expenses - all the reason HMRC need. Not worth it!

Just to add - in all of my 30 or so years both with HMRC and on the outside, I have never known the mileage option to be chosen! If it's simpler to do I always find that the HMRC benefits.

toby_puppy

good points there ceeforcat - I was thinking it might have been beneficial to go the mileage route purely because of the car cost being quite low at £4900 - however, I can see your point if the car had cost £12000 it would depreciate very rapidly on that level of mileage.

we don't tend to use the "mileage" option for our clients, just the actual expenses and the capital allowance.

as the OP says - I bet a lot of people are unaware and actually claim mileage AND capital allowances!

Drives_Too_Much

If I can't change mid car then when this car goes for scrap (in about 18 months time I'm guessing) then I'll tally up all I spent on it (I should have all the receipts in theory) and work backwards to see which would have worked better. Thanks for the info all.
If I do move over to doing it by actual costs rather than mileage i'll raise the personal use % to avoid suspicion, but actually it's pretty much about right, I didn't even learn to drive before I started this job as I had no need.