Self Employed Car Rental

Daveinlincoln

Hi I'm about to go self employed as a sales rep and i'm required to have a car for this job to get around and see clients.

My question is can I claim for the cost of renting a car as a legitimate business expense when I come to do my tax return?


If so, how much of the cost can I claim ? or would I be better off buying a car and claiming the cost of buying it when i do my tax?

Thanks in advance for any advice you can give

Dave

Pennywise

You can claim the percentage of car costs according to the proportion of business to total mileage. If you use it 50% for business travel, then you can claim 50% of whatever costs you incur, including rental, or leasing, etc or capital allowances on outright purchase, plus fuel, repairs, insurance, road tax, etc etc.

You have to do the sums - you're best obtaining the car the cheapest way possible. No point spending twice as much as you need to - true you get more tax relief, but the net costs after tax relief will still be higher than your cheapest option.

Mahmood_Reza

to add to the comment from pennywise -another option is to claim mileage at 40p/mile for the first 10,000 business miles + 25p/ business mile thereafter. This is applicable if (a) level of sales/fee are below VAT reg limit (approx £68,000); and (b) you are consistent in claiming either a % of actual running costs (inc capital allowances) or mileage, cannot mix them up. If mileage claimed then ensure records are kept

Daveinlincoln

Hi thanks for that Penny, i was just wondering what sort of evidence I have to provide for claiming back the cost of renting a car regarding private milage and rental costs.

We already have a decent familly car that i'll be using for personal stuff but the Rental car will be for just business give or take 10%, will the tax office believe me?(i genuinely will only use it about 10% for personal).

i.e if renting the car costs me £400 a month and I spend £350 in Petrol but i use the car for personal use 10% of the time. Do i owe the tax man £75 ?

Thanks so much for taking the time to answer.

Dave

ceeforcat

Currently businesses generally face a reduction in the amount of rental
payments allowable as a deduction for expenditure incurred on the hiring of a
car if the retail price of the vehicle, when new, exceeds £12,000. The
disallowance is by reference to a rather convoluted calculation.
Where a lease commences on or after the 6 April 2009 (1 April 2009 for
companies), the reduction in the amount of car lease rental payments will be
applied only to expenditure on cars with CO2 emissions over 160g/km. The
new rules will disallow a flat rate of 15% of the amount of the deduction that
would otherwise be allowed.

So much for simplification!

Mahmood_Reza

you owe them the tax on £75

Daveinlincoln

I think i get what you are saying Mahmood but bare with me here, are you saying that if I rent a car for the purpose of my job that I can either;

1) claim for the milage (at the rates you indicate) but not claim for the cost of renting the car.

OR


2) Claim for the cost of renting the car but not for any business milage.

John_Pierpoint

Are we muddling up "leasing" with "renting".

Don't ask me where the switch over point comes, but renting usually refers to a car you return after a week or 6.

Does the car need to be better than "minimum adequate" for the job?
For example if you were trying to sign up sellers as a rep for Estate Agents Strutt and Parker (say), the sellers of a 1,000,000 house, probably would not expect you to arrive in a 4 year old Fiesta.

Similarly if you job involves dodging about in central London, getting a liquid petroleum gas one might be a good investment.

Don't let the Income Tax tail wag the dog.

dave2

I think the options are the following, though I must confess to some uncertainly with the new rules specially since HMRC website is in the typical mess of obsolete, partially obsolete and new pages:

Using a personally owned/rented/leased car: claim 40p per mile for first 10,000 miles in a tax year, 25p thereafter. This is deliberately made simple as possible so you literally just show this as an expense/deduction. You should keep a log showing date, from, to, bit of detail and number of miles. You do not claim any personal mileage and so if you have a base (e.g. work premises) and you travel from home to a client, you would claim the extra miles travelled over and above what you would have travelled by going to work. You do not claim any other car expenses, the mileage rate includes everything.

Using a car owned by the business: here either the business buys a car or you bring your existing car into the business as an asset, at market value. This is relieved for tax under capital allowances, which will mean looking it up and doing a calculation (100%, 20% or 10% of cost per year on reducing balance basis, rate depends on the exhaust emissions). You could put all the repairs and fuel through the books. You would then add-back the private use element i.e. 10% of the capital allowances and 10% of the fuel & repairs cost. If you buy on HP you'll get to claim the interest less the 10% private use.

Business leasing a car: assuming you start a new lease now, put the leasing costs through the books then add-back your 10% private use. Then, if the exhaust emissions are 160gkm+ take the remaining lease costs and add back 15%. This gets complicated if you don't just pay a flat monthly fee e.g. paying a large initial amount. Also beware of a "lease" that is really hire purchase is not a lease!

Business hiring a car: OK this sounds insanely expensive if you're going to be travelling around a lot. Anyway, initially I had thought this was treated as a general car expenses however after a bit of reading I'm getting the hint that this is now treated similar to the leasing i.e. you need to add-back the personal use element, 10%, the rental costs then if emission is 160gkm+ add back 15% of what remains. Put through the fuel then add back the private use 10%.



In terms of records you need to be able to support your expense claim. For mileage, you just need the mileage log mentioned, nothing more. For the others you need to keep receipts for everything and you'll also need to be able to back-up the personal use %, which probably involves keeping a mileage log (but this time writing down and identifying both the personal and private element) for at least a month or two.

10% sounds very low private use to me, but if you're a travelling salesman who's base of work is his home and have another car for personal use, well if the mileage log backs you up then that's what it is.

Like John_Pierpoint says though, consider the actual costs first and the tax implications second. I tend to suggest just going for the mileage but I get the impression it's possible you'll be doing a substantial amount of travelling in which case do the sums.