Claiming for the costs of a car or van is something of interest to many business owners.
First, the rules are different for Sole Traders / Partnerships and Limited Companies.
Lets start by looking at Sole Traders/Partnerships. There are two choices on claiming expenses:
1 – mileage – this is the simplest and easiest and you simply claim at 45p per mile for the first 10,000 business miles carried out in a tax year, and thereafter 25ppm. This is an expense of your business and deducted against your taxes. The same rules apply for cars and vans. There is no personal “Benefit in Kind”.
2 – actual costs – this is more complex. Here you total up the running costs of your vehicle – fuel, servicing, tax, insurance, repairs, and claim a proportion of these against costs. The proportion is the business mileage as a percentage of total miles. Additionally you can claim Capital Allowances on the cost of the vehicle, with the rate of Capital Allowance depending on the vehicles emission data.
Generally the first option is simpler, and most people are better off with a mileage claim unless you have an expensive car and very low mileage.
What about VAT? If you are VAT registered you can claim a proportion of these costs against VAT. If you claim VAT on fuel, then you have to pay a scale charge for private use of the vehicle. You can’t claim VAT back on the purchase of a car, but you sometimes can on a “commercial vehicle” (van or truck mostly).
What counts as business mileage? This is a hot issue, as HMRC have been moving the goal posts of late. Business mileage is generally all business related journeys – so travelling to clients, customers, suppliers, accountant, bank, Post Office , other than regular and predictable journeys from home to a regular workplace. This latter restriction means that if you have a regular pattern of business travel and are attending specific venues regularly, then that mileage may not count; the extent of this restriction is a grey area, and whether it catches you may depend on personal circumstances, eg pattern of journeys and carrying equipment/materials.
It’s a good idea to keep a log of business journeys to support your claims.
Moving on to Limited Companies, here the complexity is that a company director is an employee of the company.
This means that if the Company owns a car used by its director (or any other employee), then a fairly large personal Benefit in Kind tax charge arises – this normally makes corporate ownership fiscally unattractive.
In most cases, company directors claim mileage based on the principles explained above.
The rules on “commercial vehicles” (vans/trucks mostly) in a company are more relaxed, and so this can be feasible. However anyone contemplating owning a vehicle in a company would be advised to speak to their accountant.