Self Employed Car Expenses

patsypickle

I understand as a self employed person there are 2 ways to claim for use of own car for business purposes i.e. 1) 40/25 pence per mile and 2) %age of car expenses used for business use.

Does each of these methods take into consideration the cost of the car? i.e. can the cost be included as capital allowance and also include 40/25 pence per mile of business mileage or does the 40/25 pence per mile include the purchase of the car?

Thanks in advance for any help I am struggling with this and although I work full time hours, the company I work for won't employ me so I am having to submit accounts as a self employed person.

chrismac1

My recommendation is to do the sums both ways, then claim the best option for you. In most cases 40 pence is OK for most clients - but if you are running a car which burns a lot of juice you'll want to claim "actuals". If you claim 40 pence a mile the only quibble which can ever arise in a tax visit is "Is it really 1,000 miles return from London to Southend?" If you claim actuals there is a lot more scope for your costs claimed to be disallowed during an inspection.

The capital allowances are claimed separately if you go down the "actuals" route and you need to be careful here. Since 2009 this has all been about emissions - up to 160 g/km CO2 you get 20% reducing balance, above that it's 10%. Then you need to reduce this for private use.

Example - you spent 10,000 on a new car which is under the 160 limit and you say private use is 25%.

Capital allowances are 20% so that is 2,000, and the written down value of the car for next tax year is now 8,000.
But for this year's return, you claim 75% of the 2,000 which is 1,500.

If you end up claiming a round % like this as private use, I recommend keeping the actual mileage records for one month per tax year. This area is an easy hit for the inspectors. Having said that, all my clients know there is a risk here but few of them are keeping the records for one month per year.

chrismac1

Motor Expenses






At 40 pence per mile


Start date 01-May

Latest date 30-Apr 2376
Year End 30/04/2011 2376 950.40



Actual Cost Method


Insurance 369

Tax 215

Repairs and service 200

Parts


Fuel and oil 580

AA 54

MOT


Capital Allowances 800





Total for Full Year 2,218









Business use element
50% 1,108.87

chrismac1

The last post was a copy and paste of a real calculation, where the actual cost method comes out at 1,108.87 versus 950.40 for the 40 pence method. So a £31 tax saving at 20% and £62 at 40%. Personally the saving would need to be more than £100 to make me want to go for "actuals" - there is extra work involved, plus the capital allowances element of this calculation reduces every year.

patsypickle

Thanks you Chrismac1 - I am taking it therefore that you can't claim capital allowance if you use the 40p method?