Two questions for you: Are you self-employed? Do you use a car for your business? If the answer to question 1 is ‘yes’, then there’s a 99% chance that you also answered ‘yes’ to question 2. If so – you must read this article. Take a few simple steps and you could save yourself £000s in business tax.
Years ago, there were huge tax benefits in owning a company car. However, in the last 25 years or so, unless the company car is a hybrid or electric car, there is almost no such benefit. Unless cars are taken on short operating leases, a combination of compliance, complex admin and a punitive tax regime, negate any tax advantage.
A great tax opportunity for the self-employed
Did you know that, with self-employed status, there are plenty of savings to be made on your car expenses. You probably use your car partly for business and partly for private use. Surely, to maximise your tax benefit, it’s simply a case of separating out and identifying the two? Ah – If only it were that simple.
Essentially, our tax-saving experts at Most Money LTD present you with two options:
Tot up all your motor expenses for the year – fuel, insurance, servicing, repairs, road fund licence, subscription to motoring organisations – everything.
Calculate the percentage of your total annual mileage that’s for business.
Apply this percentage to your total vehicle expenses figure. The result will be the amount you can claim as a legitimate business expense and reduce your tax liability accordingly.
This method is often best where motor expenses are high. There’s a terrific added benefit with this method. You can claim capital allowances on the business proportion of the initial cost of the car. For example, imagine you buy your car on the last day of the tax year and use it for a single business trip. Your purchase will qualify as a business expense of up to 95% of the car’s market value!
Claim a fixed-rate mileage allowance for business. You might also be able to include the cost of buying the vehicle in the claim.
Keep accurate records
In both options 1 and 2, you should ideally keep an accurate record of business mileage. You might prefer a simple log book that you keep in your car. Or, there are some great apps that will do this for you – for example, here’s a link to the MileIQ app.
If you can’t keep an accurate record of your mileage, then it might be acceptable to take your business mileage over a typical couple of months and then extrapolate the figure across a full 12-month period.
Here are the current values for claiming:
For the first 10,000 business miles – 45p per mile
Above this figure – 25p per mile
You might think that, in order to claim motor expenses in this way, you have to have a car that’s covered in business logos. But recent court cases show that the opposite is true. Provided you can demonstrate that the business use you’re claiming is genuine, then you’ll be able to make these expense claims.
What about vans?
Traditionally, vans have been a great way to save tax. I’ve seen pictures of my grandad’s old Austin Countryman back in the early 1960s. It was a big, dark green, square estate … most of the time. But, every now and then, my grandad would cover the rear side windows with a pair of wooden boards, decorated with his company logo. Instantly, the family estate was transformed into … a van – with considerable tax benefits. I can’t imagine the modern, 21st century entrepreneur being happy to make this kind of style-sacrifice!
However, if you are style conscious, and you own an oh-so-sexy, macho pick-up that can carry at least 2 tonnes, then this qualifies for tax relief.
Don’t take risks with your money!
You’ll notice in this article one or two ‘mights’ and ‘maybes’. Tax issues are rarely as black-and-white as we’d like them to be. Never take any decision without checking first with the tax experts at Most Money. If in any doubt, call us. After all – we’re here to help!
All legal information in our ‘Motor expenses and your tax bill’ article is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get an advice on your interpretation of this article.