Tax Question (Car)

packmanuk_2

I'm self employed and use a car to get to and from work as well as travelling to different venues.

My question is what tax relief should I get on my car ?
I have a 4 year car loan of about £300 a month.

If I sold this car and leased a car for about £300 a month how much of this could I claim in tax relief ?

So am I better of owning my car of leasing from a tax point of view ?

Thanks in advance for any help given.

fengirl_2

You dont get tax relief on your car, but you can include the cost of running a car in your annual accounts and this reduces your tax bill. There are 2 options:
1. For all business journies, you include 40p per mile for the first 10,000 miles and 25p per mile thereafter. This is designed to cover all the costs of running the car - from petrol and oil to repairs and interest on a car loan, including depareciation. This is the most straightforward method, although you can't us ethis is you are VAT registered.
2. You include in your accounts everything you spend on the car - petrol, repairs, lease payments, insurance and then add back for tax purposes the proportion of your mileage which is for private purposes. In additonal you claim capital allowances on the cost or value of the car (if it is yours).
Most people say that (1) is easiest, although personally, I would maintain records for both for 6 mths to see which was more beneficial.
At the end of the day, you have to do the maths to work out which is better for you are private vs business mileage varies, as does the cost of running different types of car.

packmanuk_2

So If I lease a car and it costs me £300 month I can claim this money back in full for tax relief ? I am not vat registered.

fengirl_2

As I said above, you are not claiming anything. You simply put the expense in your accounts and so pay less tax.
You could include the lease payments in your accounts only if you use method 2 - and, along with all other motoring expenses you would need to add back your private proportion in your tax return.

packmanuk_2

So are the following examples correct -

1 - I own my car.

I do 10,000 miles a year, 50% split business, private.

I can claim 40p per mile for 5000 miles
I can claim any interest payments on the car
I can claim 50% of the cars depreciation for the year (in my case my cars depreciation was £3000) so I can claim £1500

Total claim would be (2000 -running costs + 1500 depreciation + any interest payments on my car loan.

2 - I lease a car.

I do 10,000 miles 50% split business, private.
Lease payments are £300 month

I can claim £300 month lease payments
minus
5000 x 40p mile (private usage)

Total claim would be 300 x 12 = £3600
minus
5000 x 40p = £2000

Final total would be £1600 I can claim relief on.

Have I worked this out correctly ? It seems that i'd be much worse off in option 2 (lease) than owning the car privately.

Any input on these examples would be appreciated.

packmanuk_2

Should I in option 2 not use the 40p a mile trate for private useage and just divide the lease fee by the percentage amount that I use the car for private useage ?

fengirl_2

1. No - the 40p per mile is designed to cover ALL the running costs of the car, including depreciation and interest.
2. Not quite. You can only use one method or the other - you can't mix the flat rate expense and the actual costs method. You are NOT claiming anything! You include in your accounts all the car costs - petrol, lease payments, insurance, repiars, wax, etc etc. You then add back in your income tax calculation the private use element - say 50%. You also include a capital allowances claim on your tax return if you own the car. If it is leased, no capital allowances.

packmanuk_2

Ok I think i've got it now.

If I own the car I can claim tax relief on 40p a mile x number of business miles and nothing else. (Although this year I was given 50% of the depreciation costs + petrol etc + interst payments) I guess its 1 method or the other.

If I lease the car I claim tax relief on 50% of the lease payments if I use the car for 50% business and a higher percentage if I use the car for a higher business percentage. I can them claim for petrol etc that I use for business.

Thanks for all your help on this matter

fengirl_2

Yes, thats right. But dont forget, you are not claiming anything - its a deduction in your accounts which reduces your tax.

Lazy_Ike

packmanuk wrote: »

I'm self employed and use a car to get to and from work as well as travelling to different venues.

Also note that when doing your calculation of percent private/business use, commuting mileage - '...use a car to get to and from work...' is classified at private mileage in HMRC rules