Becoming self employed and buying a new car - tax help?

Tryer_2

Hi I'm becoming self employed and have ordered a new car, I'd like to say it's an Audi A4 but it's a Citroen C1. I am deliberating whether to put a £1500 deposit down and get a £5000 loan for three years or get a PCP for three years and then give the car back. The overall outgoings are roughly the same because although I would have to pay £2500 at the end of the PCP to buy the car (if I wanted it) when you take into the loan interest plus the loss of interest on my personal £1500 deposit there's not much in it.

Now my question is...what will be the best way forward to maximise on tax allowances.
1. Would I be able to offset the monthly PCP payment against my business expenses? (Minus % for private use)
2. If I could do this could I also claim the 40p per mile allowance for business miles?
3. If I could do both of the above then I presume I wouldn't be able to write down the cost of the car by 25% each year ...or could I?

I'd be grateful of any help on the above as I want to make the right choice from the off.
Thanks:::confused:

Cleasby_2

I take it from your explanation that you do have the option to buy the car at the end of the agreement.

It seems the risks and rewards of ownership reside with you rather than the finance company. The car should therefore be accounted for as an asset in your accounts and the liability under the PCP should be accounted for as a liability.

You are entitled to claim capital allowances based on the cash price of the car. Any depreciation you provide in your accounts will be disallowable in your tax return.

At the end of the agreement you might exercise your option to buy in which case you pay an amount of money to extinguish the liability to the finance company. You continue to claim capital allowances.

If at the end of the agreement you decide to walk away and to return the car with no cash changing hands then what you have effectively done is to sell the car for an amount equal to the amount which you, immediately before the transfer, owed to the finance company. This amount must be brought in to your capital allowances computation.

All of which is fine and dandy for plc's but hard work for small businesses.

In practice small sole trader businesses simply account for the monthly payments as rentals. In the tax return the private element is adjusted out. As the numbers are small HMRC goes along with this.

Does a Citroen C1 have a list price new of more than £12,000? If so there will a further partial disallowance of the rentals if using the simplified approach.

The 40p per mile alternative overrides everything above. If you decide to claim the mileage rate then you forego all other reliefs.