Anyone that knows me, knows I’m not precious in the slightest about my car. It gets me from A to B. I NEVER, ever buy new. Maybe it’s an Accountant thing but I cannot BEAR the idea of the depreciation on a new car the second you drive it off the forecourt.
My main requirement in a car is lots of boot space and to feel safe (hence the title, I’m channelling Gary Numan Ft. Fear Factory).
One day I may even tell you about when we were being cheap and slept a few hours in Glencoe Visitors Centre carpark (or at least one of us did and it wasn’t me hahaha)
I only replace a car once its dead or close to death.
Recently my car started to show signs of heading to the great scrap yard in the sky. So as I waved it off on a tow truck it gave me inspiration for a blog post.
“You see, good things do come from bad”
This quote is actually a line from one of our Toddler’s bedtime stories, but, it’s actually very wise.
You’re probably thinking, get to the point Rachel and stop waffling about your cars!
As a self employed person you may be wondering what you can claim in terms of your transport.
There are many rules to consider so an in depth conversation on your particular circumstances will be needed but below are some instances that seem to cover most eventualities.
If you have your own car, it’s pretty simple. You can claim 45p per mile for BUSINESS use for the first 10,000 miles and 25p for any subsequent miles in a Financial Year.
You may think this is a bit stingy as it covers fuel, MOT, servicing and wear and tear on your car but hey, them’s the rules.
But just, if think you do 15,000 miles what’ll you’ll claim is £0.45 x 10,000 + £0.25 x 5,000 = £4500 + £1,250 = £5,750 x 20% = £1,150 is the amount by which your tax would reduce.
If you are a Limited Company, you can choose to pay yourself a higher amount BUT your Limited Company will need to produce a P11D and you’ll need to pay tax on the excess amount. Plus extra time for your Accountant to process the requirements with HMRC etc.
The mileage expenses paid reduces your Corporation Tax liability as it is an expense.
If your business owns the vehicle then it’s a company asset so the company claims capital allowances on the vehicle.
The company can pay for your fuel for business use but again, you will pay tax and NI on your private use which is calculated and reported through the PAYE or Self Assessment system and will update your Tax Code.
If your business leases then it depends on what lease you have. Are your handing it back at the end of the term? If yes, it’s an Operating Lease. If the emissions are under 110kg/m then you can claim 100% of the lease as an expense for a van and 50% for a car (i.e. the lease costs £100 and you’ll pay your tax rate on the expense, i.e. 20%).
If you are VAT registered then you can claim back 50% of the VAT in your quarterly returns.
So what’s better? own or lease? Depends if you want a newish car I suppose.
If you have an old banger (like me!), say it cost you £8,000 and it lasted 3 years. You needed to pay tax, service, mot and insurance personally so you’re looking at around £1000 for those expenses per year, top end.
It starts to play up so you sell it to webuyanycar (or similar) and get £1400 back.
That car has cost you £11,000 – £1400 = £9,600 whilst you’ve had it. So £3,200 per year. You claim 15,000 miles per the above calculation so you’re tax would reduce your cost per year by £900 = £2,100.
A lease will cost you £250 (estimate) x 12 x 3 = £9,000, maybe your maintenance package costs £1,000 per year = £10,000 for 3 years – £3,333 per year which is 50% deductible as it’s a car. £3,333 x 50% = £1,666 x 20% (tax relief) = £333
The Grand Total that you would pay for the use of the car for each of the 3 years would be £3,000. £900 more expensive than owning. However, you need to be careful of balloon payments and excess wear and tear costs on return.
The upside to a lease car is that you get a relatively new car which generally will mean it’s more reliable and therefore you don’t have a surprise bill when your car breaks down.
I hope this has helped you understand a little more about transport costs and related taxes. If you need any further information or a personalised calculation, let me know! I’ll be on hand with my customary brew and cake!