Self Employed Claimable Motor Expenses 5

mann im auto

If you are self employed, you probably use your car for your business and that means you will incurr costs to keep the car running.

So what is a car….

A car for tax purposes is any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

  • is constructed or adapted mainly for carrying passengers or
  • has to the rear of driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows

If you had a commercial vehicle instead of a car its likely that all the costs would be business costs because there would only be minimal incidental private use.

HMRC have just released a video to explain how you can claim motor expenses….

Bascially you can claim either a % of the total running costs (Actual Cost Method) or a mileage allowance payment.

The mileage allowance is 45p for the first 10,000 miles and then 25p per mile after that.

Using the Actual Cost Method you can claim a % (relating to business use) of :

  • Capital Allowances (these help you recover tax on the purchase price of the vehicle)
  • Fuel
  • Road Tax
  • Maintenance
  • Insurance
  • MOT
  • Repairs

You may have other costs which are ‘wholly and exclusively’ for business such as:

  • A Sat Nav to find customers and make deliveries
  • Signage on the vehicle
  • Modifications

Basically if a cost is ‘wholly and exclusively’ for business then you can claim 100% against tax.

steve@bicknells.net

If you work from home and claim mileage, you could be in for a shock 1

Highway Robbery

Its probably fair to say that most contractors who have an office at their home claim business mileage when they visit clients, but things could be about to change for the worse….

In what could become a landmark decision in the interpretation of “wholly and exclusively” allowable expenditure, a doctor has lost a protracted battle with HMRC over his business mileage claims.

After an enquiry lasting more than seven years and three tribunal hearings, the First-tier Tribunal led by Judge Kevin Poole acknowledged Dr Samad Samadian had a dedicated office in his home which was necessary for his professional activity.

However, the panel did not accept that the home office could be treated as the starting point for calculating private practice business mileage involving habitual journeys.

Potentially, the decision has wide implications for all professional self-employed activity, where the business owner undertakes substantive work at home, but also has another business base at which they deliver their expertise regularly.

http://www.taxation.co.uk/taxation/Articles/2013/02/13/53821/way-go-home

It is understood that Dr Samadian will be appealing.

But this could lead to Consultants paying back thousands of pounds in tax.

Phil Stunell spotted this article with the full details http://www.independent-practitioner-today.co.uk/news_story.php?r=1605&a=public

steve@bicknells.net

Company Car or Car Allowances, which is best, there’s only one way to find out…. 7

Let’s take an example:

VW Golf Blue Motion 1.6 TDI 105PS £18,860 Diesel CO2 99g/km

http://www.volkswagen.co.uk/#/new/golf-vi/which-model/engines/overview/

Using the HMRC calculator http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

Tax Liability indicator:                                     20%                        40%

Company Car Tax (2012/2013)                    £490.20                £980.40

Company Car Fuel Tax (2012/2013)          £488.80                 £977.60

Total                                                                        £979.00                  £1,958.00

If you (the employee) pay for your private fuel you won’t have to pay tax on it.

 

The Employer will need to pay Class 1A National Insurance on the benefit in kind

Car benefit charge (2012/2013)                  £2,451.00

Car fuel benefit charge (2012/2013)         £2,444.00

Total                                                                         £4,895.00

Class 1A 13.8%                                                       £675.51

In addition the employer will have to fund the purchase of the car based on this link the interest will be at 4.5% http://www.volkswagen.co.uk/#/new/golf-vi/which-model/compare/483/ over 36 months that’s a cost of around £3,572.30 in total

Assuming the car is purchased rather than just hired, to offset Depreciation your employer can claim Capital Allowances based on CO2 emissions:

CO2 emissions

Capital allowances treatment of expenditure

Over 160 grams per kilometre (g/km)

Goes into the special rate pool and qualifies for writing-down allowances at the rate for the special rate pool, currently 10 per cent per annum.

 

160g/km or less but more than 110g/km

Goes into the main pool and qualifies for writing-down allowances at the rate for the main pool, currently 20 per cent.

 

110g/km or less (but note that the first-year allowance for cars in this category is due to expire in 2013)

You can claim up to 100 per cent allowance in the accounting period when they were bought, the balance (which may be nil) goes into the main pool in the next year.

http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1086394511&type=RESOURCES

So in our case the CO2 emissions are 99 g/km so 100% allowances apply, but subject to a balancing charge on disposal.

So what if your employer offered you a car allowance of £300/mth and business mileage at approved mileage rates http://www.hmrc.gov.uk/rates/travel.htm

If you were a 20% tax payer you would pay tax (20%) and NI (12%) on the extra income so net, your car allowance would be £204/mth x 12 = £2,448

 

Assuming you do 10,000 business miles that’s worth £375/mth x 12 = £4,500 (note that the mileage rate drops to 25p after 10,000 miles)

 

Less the cost of Fuel using HMRC rates http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

Is 12p per mile so the cost is £100/mth or £1,200 per year

 

So overall from the employees perspective, using this example (ignoring private mileage), Net Allowance £204 plus Mileage £375 less Fuel £100 = £479 per month the cost of the Blue Motion is £320.94 a month per VW Finance (excluding the £1,886 deposit), so the allowance is a good option.

The employers NI at 13.8% on the car allowance is £300 x 13.8% x 12 = £496.80 so that’s cheaper the the Class 1A of £675.51

However, the employer losses the Capital Allowances and the Diesel would be cheaper if the employer purchased it.

Other points to be aware of are:

VAT http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm#6

H&S http://www.hse.gov.uk/pubns/indg382.pdf

It is also possible with the right advice to create a salary sacrifice scheme relating to car leasing, advisors such as Dave Hedges at http://www.edge-tax.com are experienced in these schemes.

In conclusion, in my opinion, it all depends on how much the allowance is (Car and Fuel)  and what car the employee needs (size and mileage), the only way to work out the best solution is by running the calculations to find out.

steve@bicknells.net

Tax Refund for Business Mileage 5

Many employers pay their employees expenses for business mileage, but often the amount they pay is below the HMRC approved rates shown below.

If your employer pays at rates below the HMRC Approved Rates you can claim tax relief on the difference, this can add up to a lot of money particularly for site based staff who can count travel to temporary places of work as business travel or for workers who’s place of work is their home.

You can claim the tax relief via your self assessment return or by writing to HMRC.

steve@bicknells.net

Travel – mileage and fuel allowances

Approved mileage rates
From 2002/03 to 2010/11 First 10,000 business miles in the tax year Each business mile over 10,000 in the tax year
Cars and vans 40p 25p
Motor cycles 24p 24p
Bicycles 20p 20p
Approved mileage rates
From 2011/12 First 10,000 business miles in the tax year Each business mile over 10,000 in the tax year
Cars and vans 45p 25p
Motor cycles 24p 24p
Bicycles 20p 20p