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).