Claiming Tax back on Car use as a sole trader

nododo

Hi there,

I just wandered if anyone could help me as I am a little unclear on this. I am looking into getting a new car and I am not sure which would be more efficient tax wise...a lease or a new car? Can anyone explain in laymens terms what percentage of each can be claimed back? I know a new car comes under capital allowances, but does this apply for a lease car? Also what about the CO2 emissions???

So confused...please help
no dodo

Elaine_Wilson

If you buy the car, either outright, with a loan or on hire purchase then as you say capital allowances can be claimed. The current rate is 20% in the first year and each subsequent year it is 20% of the balance remaining. There is an overiding maximum claim of £3,000 in any one year so this restricts the claim for cars costing more than £12,000.

The interest paid on any loan or hire purchase will be allowed as a deduction from your profits, thereby gaining tax relief on this too.

Leasing payments are a deduction from profits. The whole of the amount paid can be deducted if the list price of the car was £12,000 or less. If the list price is more then the amount claimable is restricted. It's a bit difficult to explain but you disallow a proportion equivalent to half the excess over £12,000. Perhaps an example will make it clear.

If the list price is £14,000 then you can claim 13/14ths of the payments. This is (12,000 + half of (14,000-12,000))/14,000. A list price of £18,000 give an allowance of 15/18ths of the payments.

All of these allowances would be restricted for the proportion of any private use.

Those are the rules as they stand at the moment but changes are imminent. A consultation document released recently proposes abolishing the "expensive car" concept and restricting allowances for cars with high CO2 emissions.

Under these proposals capital allowances would only be 10% for higher emission cars. I think the limit will start at 165 g/km.

For leased cars a flat 15% of the payments made will be disallowed for those cars.