Self Employed = Free Car????

ukbondraider

My little sister has recently gone self employed and has recently attended a Tax course for self employed people.

Basically one of the points she came away with from the course is that she thinks she can reclaim the price/cost of a whole car through tax providing she buys a low carbon emitting one e.g a 1.1 engine. They apparently gave her a list of cars that would meet the criteria. Whilst I am sure you can claim parts of the cost of running a car can you actually claim the whole price of a car whether it being the full monthly installment cost or the lump sum purchase costs.

She already has a car but is now tempted to buy a new car just because of this apparent tax benefit.

Is she correct? I dont want her to be buying something through misinterpreting facts she obtained from a course.

Thanks

nephilim

She can offset some of the car, but only if the car is used for work purposes. She will have to keep an accurate account of the mileage, aswell as amount of fuel she pays for, insurance costs, MOT, road tax etc to even consider making any sort of claim. The In;land Revenue are really tight when it comes to this, so make sure she knows what she is doing first!

ukbondraider

Lets say she buys a car for £8000 on a finance agreement of £300 per month until the car is paid off. Lets assume her monthly tax on her salary is £1000.

Can she not in addition to claiming the petrol, car tax, car insurance and repair costs get the £300 back she is paying for the car effectively meaning that she can claim the majority of her £1000 tax amount back, especially when she can claim other things back e.g suits etc? She would of course be using the new car for work purposes.

Somehow I think its too good to be true.

Am I correct or have rules changed for low carbon emitting cars?

Pennywise

If she buys an energy-efficient car (using HMRC definition), she can deduct the entire cost against her business profits. As already said, this has to be adjusted for the private use, so if she uses the car 50% business, she can only deduct half the cost against her business profits.

So if she uses the car for 50% business, and would otherwise pay tax at basic rate 22%, then she will get 11% of the car price off her tax bill, so it would only have cost her 89% of what she paid for it.

There are another couple of benefits though. Firstly, her self employed national insurance will also be reduced - normally 8% of profits, so she will pay 4% of the car value less in NIC, reducing its cost to her from 89% to 85%.

Secondly, and more importantly, if she is eligible for child tax credits or working tax credits and her profits are relatively low, by the car purchase reducing her taxable profits, it also reduces her income for tax credits, so her tax credit award will increase. As long as her income in the second claim year is not more than £25,000 over her income in the first claim year, she'll get the higher tax credit award for two years running. This could reduce the "cost" of her car down to about 50% of its price.

Of course, if her private use was only minimal, and it was used mostly for business, a combination of income tax relief, reduced NIC, and increased tax credits, could indeed mean that the total cost of the car is covered and it effectively costs her nothing!

ukbondraider

Thanks for the replies.

However it is still somewhat confusing.

Basically she is a medical consultant and will be effectively freelancing doing work here and there for £20-£30 per hour. She will definitely be in the 40% tax bracket and will be simply earning a sort of wage when she accepts a work project. So she will be moving from 2month projects to 3 months project all around the country taking the odd week off when she decides she wants to rest.

Therefore she doesnt have business profits as such and she doesnt have any kids for tax credits etc.

Ultimately her monthly tax bill will be quite large and because of this she wants to make sure she can claim back as much as she is entitled to which according to her can be the whole cost of a car assuming she uses it 100% for work and her other car for other things.

fengirl_2

She will have business profits - as a self employed person she is considered to be in business. Your sister will be running her business from home and so all the travel costs she incurs will be included in her accounts - whether costs of running the car as has been outlined above, or travel by public transport.
If your sister opens a speartate account for the business and puts all the income and expenditure through that, she won't miss anything and will make sure all her business expenses are included in her accounts. It will also make it easier for whoever is drawing up her accounts.

chappers

As nephilim says the revenue are very tight on this now, so she needs to be careful, only if the car is soley for business use will she be able to offset the full price.Even then HMRC are not having it in some cases, now if she bought a van that would be a different matter altogether.With regards to her expenses she should keep a very tight record of her business journeys(preferably cross checkable to her work schedule/invoices).

marginalnut

What course did your sister attend, I very much need to attend a similar course.

thanks in advacne J

stphnstevey

Interesting - I am considering contracting in the medical industry and will also be doing a great deal of travelling - does anyone have the link to the HMRC page?

Rabiddog_2

She could lease a car..I think 100% of the cost of leasing a car is allowable, again on the basis that it is used 100% for work. she can then change it every year, shes not responsible for the maintenance etc.. quite a nice solution really.