New Car - can I claim against income tax?

Cjs_2

Hi - I started my own business (PR agency) in January 2009 and have been using my old car to travel between clients (probably 90% business use - I hardly use the car for private use as we always use my partner's car when we go anywhere). However, I have bumped the mileage up massively as I am now travelling so much and really need to consider buying a newer, lower mileage (my current car has over 150k on the clock) vehicle - as reliability is essential to my business.

Someone told me that if I buy another vehicle before my tax year ends (31 March 2010) then I could claim this against my income tax. Is this true? I have been saving 20% of all of my earnings so far to ensure I have enough to pay my tax bill at the end of the year, but if I put - say £5000 - towards a new car, will this be deducted from my income - and therefore reduce the amount of income tax I have to pay?

Any advice would be VERY welcome. Thanks and await your replies in anticipation!!

Rolo_Tomasi

You do not reduce your tax by the cost of the car (or any item for that matter) but you can claim tax relief on the purchase. For a car this is restricted to 20% of the cost less any private use so, using your example, if you were to pay £5000 for a car then you would reduce your taxable income by £900 (20% of £5000 less 10% private use). In terms of tax saved this would depend on your earnings but assuming that you are not higher rate then this would save you £252 (28%).

The whole issue of claiming tax relief on motor expenses probably needs to be looked at as it may be more beneficial for you to claim mileage at 40p per business mile rather than the actual expenses.