Most cost effective car for the self employed?!

Phil_rich

Hi,

I have just switched from being employed to self-employed and I now need a vehicle for my work. I used to cycle to work so do not have a car, therefore I am looking for the most cost effective way of getting a car for business use. As far as I can see there are a few options open to me:

1. Buy a car for myself - personal - and claim 45p per mile up to 10k
2. Get a business lease hire and pay each month and claim the cost back
3. Buy a car for my 'business' with the money out of the business and have it as an asset and then write off a set amount each year in line with HMRC.

I keep looking into it and the more I do the more I get confused.

Please can someone help me calculate the most cost effective way of getting my new car. ( it will be brand new circa. £18k, or there abouts)

Thanks in advance,

Phil

mikey72

Are you VAT registered.
Sole trader or Ltd?

Pennywise

What will be your annual mileage, broken down between business and private journeys?

Do you have £18k cash to buy it or will you be needing HP or a bank loan or to lease?

There are no "general" rules - which way to go will be decided upon the exact facts of your circumstances. Sometimes it's best to buy personally and claim the HMRC mileage rates, other times it's best to buy/pay through the business. There is also big differences whether you are a sole trader or a limited company.

Post up some real facts and then someone will give you a few pointers.

Phil_rich

Hi, thanks for the responses.

I am a sole trader who is VAT registered, mileage would be 80% business at a minimum, with mileage total at about 15k. I do not have the 18K cash so most of the private purchase would bank loan or hire purchase.

Thanks

Phil

paulwf

Apologies for stating the obvious but the most cost effective method is probably to get a much cheaper second hand car.

I hope you don't mind me saying that, it is just when you start out cashflow is king so you want to keep your expenditure as low as possible. Get the cheapest reliable car you can, you can always trade it in down the line if things are going well. OTOH you'll regret it if you have an £18K car draining your cashflow knowing if you sell it you'll only get a fraction of it back.

Don't play the game of getting a flash car to give a good impression to clients. As one very good small biz guru wrote he drove an old car, put the key on a Mercedes key fob, parked around the corner out of sight then flashed the posh key fob around

Phil_rich

Paulwf, I understand where you are coming from, however the same question would still apply. What would be the most cost effective way of buying said car? Whether the car costs £8k or £18k, i would still like to know the 'cheapest' way of getting it.

Anyone?

Thanks
Phil

vialdana

Phil_rich wrote: »

1. Buy a car for myself - personal - and claim 45p per mile up to 10k
2. Get a business lease hire and pay each month and claim the cost back
3. Buy a car for my 'business' with the money out of the business and have it as an asset and then write off a set amount each year in line with HMRC.

I keep looking into it and the more I do the more I get confused.

I'm assuming you're a sole trader not an Ltd company for which the rules are different.

I would think that option 3 would be your cheapest option because: 1 - The purchase would be a business expense so you would avoid paying tax on the equivilant amount earned in that year.
2 - As a capital asset the car would belong to the company, but it's value would drop over time and each year you can write off a percentage of the value of it due to depreciation.

Having said this, if you personally own the vehicle you'll be able to claim the mileage on this as you pointed out, and it will be a whole heap simpler to keep things simple on your tax returns. Do you have a tax advisor? If you do they may be able to advise you better, failing that, if you go to conceptvehicleleasing dot co dot uk there is an article there on sole traders and car taxation which may be useful to you. Sorry being a new user I can't post links yet.

HappyMJ

Number 1 is by far the easiest. A simple 45p per mile. It may not be the cheapest but the hassle of collating receipts and depreciating the asset and getting business loans just makes it not worth it for me. Just buy a car for whatever you can afford without borrowing a huge amount (maybe 1 or 2 months income if you need to) and claim the 45p against tax.

GlynD

Phil_rich wrote: »

Hi, thanks for the responses.

I am a sole trader who is VAT registered, mileage would be 80% business at a minimum, with mileage total at about 15k. I do not have the 18K cash so most of the private purchase would bank loan or hire purchase.

Thanks

Phil

In my experience, to enjoy the fruits of your labour as well as being cost effective, Contract Hire would be your best option. You can get a good quality fleet saloon for between £200-£300 pm + VAT. Your accountant will confirm what I'm telling you but you will be able to claim back around 90% of the fuel costs as well as 100% of the VAT, as well as being able to include around 90% of the contract in your profit and loss.

If your business can stand it you'll find you can get a Mercedes C or E class for less than £500 pm. Most equivalent BMW's for the same. Really good bargains on SAAB.

Shop around and get the quote which suits you for the car you want. Bear in mind that salesmen will try to deter you from this option because they don't get as much commission on it as they would from a PCP or Lease Purchase.

Pennywise

Given mileage and cost, I'd say that you should buy it and claim all costs through your business - you'd add back 20% of all costs to cover private mileage, but still claim 80%.

If you bought a cheaper car, then you'd be better claiming the 45p/25p per mile for each business mile driven, as it works out better than claiming the actual costs.

As to how to buy it, go for the cheapest option, whether it be lease, contract hire, HP or bank loan. Over the life of the car, you get the same tax relief, it's only the timing that changes. You're always going to be better off if the total cost over the life of the car is say £50k by buying on HP or loan, as opposed to it costing say £60k on a lease or contract hire.

Re the contract hire mentioned above, you'd only be able to reclaim some of the VAT if you're a VAT registered business.

GlynD

Pennywise wrote: »

Given mileage and cost, I'd say that you should buy it and claim all costs through your business - you'd add back 20% of all costs to cover private mileage, but still claim 80%.

If you bought a cheaper car, then you'd be better claiming the 45p/25p per mile for each business mile driven, as it works out better than claiming the actual costs.

As to how to buy it, go for the cheapest option, whether it be lease, contract hire, HP or bank loan. Over the life of the car, you get the same tax relief, it's only the timing that changes. You're always going to be better off if the total cost over the life of the car is say £50k by buying on HP or loan, as opposed to it costing say £60k on a lease or contract hire.

Re the contract hire mentioned above, you'd only be able to reclaim some of the VAT if you're a VAT registered business.

I need to take issue on the VAT. As a sole trader it is he who is VAT registered, not the business, therefore he is able to claim back 100% of the VAT on a contract hire.