In this post our accounting expert Amy Taylor explains what car expenses you can and can’t claim for against the business.
Often an area of some confusion for my clients, is the question of what to claim for car expenses. Should we be putting our petrol bills through the accounts, or is there another way of claiming these expenses?
The answer is that, as a sole trader, you have 2 choices, either to claim the business proportion of “capital allowances” and running costs or to claim 40p per mile (up to 10,000 miles, and then 25p). Capital allowances are similar to depreciation charged in a set of accounts, in that they are designed to spread the cost of the asset over its useful life. Capital allowances on cars have changed recently and are now based on the emissions of your car. If you have bought, or are buying, a new car in tax year 2010/11, you will receive 100% capital allowances for cars with less than 110g/km, 20% for cars with emissions between 110 and 160g/km and 10% for cars over 160g/km. So if you buy a car with over 160g/km, you can only offset 10% of its cost in year 1 (further reduced by personal use – see below), and in year 2 you will take a further proportion of the written down value of the car (ie of the 90% of the cost of the car).
Any capital allowances and share of running costs that you claim as expenses must be based on your actual business use of the car in the year, so you should keep a log of business journeys taken, with dates, destinations and mileage. You should also make a note of your personal mileage, so that at the end of the year you can work out the proportion of business use out of the total miles travelled. So if your business use worked out to be 50%, you would claim 50% of the capital allowances available, and 50% of all the running costs including servicing, petrol, etc,.
In many instances, it will work out just as well for you, and be simpler to calculate, to claim 40p per business mile travelled. However, what you claim will depend on your circumstances regarding business and personal use of your car, as well as how much you spend on it. It also depends on how long you expect to keep your car for and whether it is worth anything at the end. You should ask your accountant to look into the best claim for you.
If you are a limited company, you can either charge your company 40p per mile (up to 10,000 miles, and then 25p), or you can sell or transfer your car to the limited company and use it as a company car. Should you choose to have a company car, there is no need to record your mileage, however, you will be receiving a taxable benefit from the company which will need to be recorded on your P11D.
Amy Taylor Accountancy takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Amy Taylor Accountancy. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances and properly implemented.