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Most cost effective car for the self employed?!

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  • Pennywise
    Pennywise Posts: 13,468 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    GlynD wrote: »
    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.

    He and the business are one and the same, so if he is VAT registered, then he can claim some of the input VAT. Not 100% though - it's only 50% for a car.
  • GlynD
    GlynD Posts: 10,883 Forumite
    edited 13 June 2011 at 5:27PM
    Pennywise wrote: »
    He and the business are one and the same, so if he is VAT registered, then he can claim some of the input VAT. Not 100% though - it's only 50% for a car.

    Then I'm in for a shock because I claimed 100% for over ten years. During that time I had three VAT inspections and they never found a thing wrong with my accountancy. Full records available on Sage L50 too.
  • Phil_rich
    Phil_rich Posts: 270 Forumite
    Thanks for the input, I was swaying towards lease hire as GlynD has mentioned and I think this has confirmed my thoughts. Also if I go for a very low emisions car then I will only pay minimal tax I bilieve? I really must get an accountant on board.
    --- Fat club weight loss -- Started 10th April 2015
    Update: 28.4.15 - 8lbs
  • Pennywise
    Pennywise Posts: 13,468 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    GlynD wrote: »
    Then I'm in for a shock because I claimed 100% for over ten years. During that time I had three VAT inspections and they never found a thing wrong with my accountancy. Full records available on Sage L50 too.

    "If you lease a car for business purposes you'll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:
    exclusively for a business purpose
    a taxi, for driving instruction or self-drive hire"

    As per HMRC website

    http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm
  • GlynD
    GlynD Posts: 10,883 Forumite
    edited 14 June 2011 at 10:07AM
    Phil_rich wrote: »
    Thanks for the input, I
  • Acc72
    Acc72 Posts: 1,528 Forumite
    Pennywise is correct - unless you are a taxi driver etc. you can reclaim 50% of the vat on the hire cost and 100% of the vat on any maintenance charge.

    As you can see from the many replies, the tax treatments can be confusing, and you would be best advised to visit an accountant.

    My advice would be : focus on what is best for you and the business, and let the tax take care of itself (you could argue that there may be a "better" way - i.e. to pay less tax, but it is better that you concentrate on your core business, as whatever option you choose there will be tax to pay).

    eg. if you are a new sole trader, would you really want to take out a loan of £18k for a car if there is uncertainty regards to your earnings ?

    With leasing, you may decide to pack in the venture in 6 months and get a regular job - therefore signing a 3 year lease may not be a good option.

    Unless you specifically "need" an £18k car, my advice would be to take out a 12 months lease agreement or to purchase a much lower value car (say £5k) until you have hopefully made some money and have a better understanding of what your earnings will be.
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