Cars, Vans & Mileage

Running Costs

There are two ways of claiming motor expenses if you are self-employed:

• Using actual expenses.
• Claiming a mileage allowance.

Although the second method is easier, the allowance set is low at 45p per mile, and you may not be obtaining as much tax relief as you could have had if you had claimed actual expenses.

If you prefer to use actual costs, then you can include fuel, consumables, repairs, road tax, and finance costs. Pretty much everything APART from Fines and Penalties.

WARNING: You can’t simply claim for the entire cost of running your car. You’ll need to work out what proportion of the mileage is private use versus business use. The best way to do this is with mileage records for each journey. If this is not possible, then keeping records for a representative period and scaling it up to a full year is acceptable.

Purchase Costs

If you claim the fixed rate mileage allowance then no further allowances are available. However, for qualifying purchases, Capital Allowances are available.

The allowances are available for all vehicles, but really generate tax savings where the vehicle is designated as a goods vehicle. This includes vans, but also certain double cab pick-ups and commercial based Land Rovers. 100% electric EVs also qualify.

Capital allowances are available to Sole Traders and Limited Companies. The rules are complex and a common target for HMRC enquiries. Make sure you take specialist tax advice BEFORE you get seduced in the showroom!

Two Wheelers

Bicycles and Motorcycles used in the business are eligible for 100% Capital Allowances under the Annual Investment Allowance (AIA). They must be used in the business and an element of private use will be expected. Useful for getting around North Wales for those of us with nothing to carry!

Leasing and VAT

Most people will be leasing their new vehicle and this brings huge cashflow benefits. The accounting and tax rules around finance costs and VAT are complex though. Speak to a tax specialist before you purchase to make sure you understand the full implications.

Tax Tips

Motoring Expenses are very likely to be scrutinised during a tax enquiry. The common problems we see are

• Including home to work travel as an expense. This is commuting and not allowed.
• Not keeping accurate records or keeping insufficient records.
• Capital Allowances claimed for cars not actually used in the business.

WARNING: If your record keeping is found to be lacking (this is very easy for HMRC to do) then they may go back for up to 5 years and disallow all your motoring expenses. This can lead to large tax bills and penalties.