Self employed car purchase

[geoff2149]

Hi, Just looking for advice, I have been self employed now for 5 years and my car has just broke down, needs a new engine at the cost of £3k. which is more than the car is worth..

Im therefore looking to purchase a new car, what if anything of this purchase can I put against the business..

If I use the car for 80% business and 20% private, can I claim 80% of the monthly finance payment against my tax, and will there be any VAT as I am also VAT registered...

I would be very grateful for any advice..

Thank you...

 

[Esk247]

Aa far as I know the advice has been to NOT purchase through the company as it has tax implications.

I've always been told to buy a second hand nearly new car for say 4k and use the 45p per mile (or whatever it is) to pay for the petrol and running costs. Putting it through the business would have incurred extra costs, especially if it was a brand new vehicle.

 

[David Griffiths]

The OP says that he is self employed, which normally means that he is not trading through a limited company. If that is the case, he will be able to claim 80% of running costs as a deductible expense, and a capital allowance based on the price of the car. It isn't as simple as claiming 80% of the finance payment, I'm afraid.

Of course, if there is a limited company then the advice given would be different and usually recommends buying the car privately and claiming a mileage allowance.

 

[Truemanbrown]

Hi, Just looking for advice, I have been self employed now for 5 years and my car has just broke down, needs a new engine at the cost of £3k. which is more than the car is worth..

Im therefore looking to purchase a new car, what if anything of this purchase can I put against the business..

If I use the car for 80% business and 20% private, can I claim 80% of the monthly finance payment against my tax, and will there be any VAT as I am also VAT registered...

I would be very grateful for any advice..

Thank you...

Obviously, there are a couple of ways you can go:-

• As long as your turnover does not exceed the VAT Registration threshold (i.e. you registered voluntarily), you claim mileage allowance for the vehicle (i.e. at 45p per mile for the first 10,000 mile and 25p per mile thereafter in any fiscal year). If you are purchasing the car by HP, you can claim the finance charge related to each repayment. In this scenario, you cannot claim a capital allowance on the cost of the car;

• you can claim for running costs of the car (i.e. petrol, insurance, repairs and tax) and take off a deduction for personal use. If you take this route you can claim a capital allowance on the car (again, you would make a deduction for private use). No VAT can be reclaimed unless the car was purchased under certain circumtances. If you are purchasing by HP, you can the finance charge associated with each repayment.

Once you have chosen the route to be taken, you cannot change it until you change cars.

You should discuss this with your accountant asap.

 

[geoff2149]

Thank, as I had to VAT registered for going over the threshold, does that mean the Mileage alowance option is no longer available to me??

 

[Truemanbrown]

Thank, as I had to VAT registered for going over the threshold, does that mean the Mileage alowance option is no longer available to me??

Yes. As you can see from page 3 of Helpsheet HS222!

 

[geoff2149]

Looking at capital allowances for the Car, If I purchased a car for £10,000 and used it for 80% business, then if what I am reading is right, in the first year I could claim 20% Writing-down allowance on that £10,000, IE £2000, then as I use the car for 80% business I would claim 80% of the £2000 (£1600)

I could then claim again in the second year but as I have already claimed 20% the cars value would be reduced to £8000 and I would claim 20% of the £8000, IE (£1600), then 80% of that (£1280)

Obviously this is going down the running costs line as my turnover is over the VAT threshold..

Is what I have said above correct, and how many years can you claim, is it for as long as you keep the car, with the value you are claiming against reducing every year..

If I bought the car on HP and the interest was £1000 I would then be able to claim back that interest as well on a monthly basis over the term of the loan...

??

 

[Truemanbrown]

Looking at capital allowances for the Car, If I purchased a car for £10,000 and used it for 80% business, then if what I am reading is right, in the first year I could claim 20% Writing-down allowance on that £10,000, IE £2000, then as I use the car for 80% business I would claim 80% of the £2000 (£1600)

I could then claim again in the second year but as I have already claimed 20% the cars value would be reduced to £8000 and I would claim 20% of the £8000, IE (£1600), then 80% of that (£1280)

Obviously this is going down the running costs line as my turnover is over the VAT threshold..

Is what I have said above correct, and how many years can you claim, is it for as long as you keep the car, with the value you are claiming against reducing every year..

Not exactly, it depends on THE car.

If the car is new and unused and has exhaust emissions lower than 110g per km, it will qualify for an 100% first year allowance!

If the car has emissions over 160g per km it qualifies for the special rate (currently 10% but falls to 8% from April 2012).

If the car has emissions between 110g and 160g per km it qualifies for the main pool rate (currently 20% but falls to 18% from April 2012).

Because there is private use, the car would be treated separately from other assets.

For example, you purchased a new car with emissions of 180g per km for £10,000 in April 2012. You use it for business purposes 80% constantly. Your accounts are drawn up to 5th April each year. The capital allowances you can claim are as follows:-

Y/E 5 April 2013
Cost-------------------------------------------10,000
WDA@ 8%-------------------------------------800 (Business use 80%, claim is £640)
WDV Cfwd-----------------------------------9,200

Y/E 5 April 2014
WDV Bfwd----------------------------------9,200
WDA@ 8%------------------------------------736 (Business use 80%, claim is £589)
WDV Cfwd----------------------------------8,464

This will carry on to you dispose of the vehicle. You would put any disposal proceeds against the Written Down Value (WDV) and claim a final allowance or pay a charge depending on whether the proceeds is higher or lower than the running WDV.

If I bought the car on HP and the interest was £1000 I would then be able to claim back that interest as well on a monthly basis over the term of the loan...

Basically, yes. The simplest way is to take the finance charge over the life of the lease so that you will take an equal amount each month.

Remember, to deduct 20% for private use!
??

 

[geoff2149]

HI, thats great thank you for all of your help...

Unfortunatley the vehicle I am loking at has CO2 of 193, I live in the country so am replacing a landrover... so it would only be the 8%, may look for an alternative vehicle with lower co2 emissions...

 

[geoff2149]

Not exactly, it depends on THE car.

If the car is new and unused and has exhaust emissions lower than 110g per km, it will qualify for an 100% first year allowance!

If the car has emissions over 160g per km it qualifies for the special rate (currently 10% but falls to 8% from April 2012).

If the car has emissions between 110g and 160g per km it qualifies for the main pool rate (currently 20% but falls to 18% from April 2012).

Because there is private use, the car would be treated separately from other assets.

For example, you purchased a new car with emissions of 180g per km for £10,000 in April 2012. You use it for business purposes 80% constantly. Your accounts are drawn up to 5th April each year. The capital allowances you can claim are as follows:-

Y/E 5 April 2013
Cost-------------------------------------------10,000
WDA@ 8%-------------------------------------800 (Business use 80%, claim is £640)
WDV Cfwd-----------------------------------9,200

Y/E 5 April 2014
WDV Bfwd----------------------------------9,200
WDA@ 8%------------------------------------736 (Business use 80%, claim is £589)
WDV Cfwd----------------------------------8,464

This will carry on to you dispose of the vehicle. You would put any disposal proceeds against the Written Down Value (WDV) and claim a final allowance or pay a charge depending on whether the proceeds is higher or lower than the running WDV.




Basically, yes. The simplest way is to take the finance charge over the life of the lease so that you will take an equal amount each month.

Remember, to deduct 20% for private use!
??

Are the rules the same for 2nd hand cars, as I am not looking at a new vehicle but one that is 3 years old??

 

[David Griffiths]

Are the rules the same for 2nd hand cars, as I am not looking at a new vehicle but one that is 3 years old??

Yes, the rules are the same

 

[geoff2149]

Thats great thank you...