Claiming for business motor expenses

You have a car, you use it for work, so you want to include it as a business expense, simple surely?

Unfortunately, it’s not – travel, and in particular motor expenses are more complicated than you may imagine.

What counts as business travel?

To work out “what” you can claim, you have to start with “why” you are making the journey, then decide if it counts as business travel. Even this is not always straightforward – what counts as business mileage is going to be slightly different depending on your particular circumstances and how you operate. You are not allowed to include your normal journey to work, but beyond that you can include any mileage solely and directly related to your business. It does not just have to be travel to customers; a journey to your accountant would count, as would a trip to purchase materials.Once you have established what to include for your particular business, it is important to keep a record of your business mileage – more on this later.

* How do I claim for motor expenses?

We’ve covered the “why” and the “what” so now we move onto the “how” part. There are two main methods of claiming motor expenses: the full cost method and the mileage method. Deciding which to use depends on whether you are a sole trader, limited company, whether you are VAT registered and the nature of your journeys. All rely on good mileage records.

1. Sole Trader

If you are a sole trader (or partnership) and are not VAT registered, then you can choose whether to use the full cost method or mileage method. The choice generally comes down to how much you are using your vehicle for the business.

Full cost method – This method is easier if you are using your vehicle predominantly for work and have little or no personal use e.g. a work van. You include all the costs and then deduct any private use element.

Can claim:

• Fuel
• Repairs and MOT Insurance
• Tax and breakdown cover Cost of the vehicle – via tax capital allowances

Can’t claim:

• Private use element
• Fines and penalties

The private use element is based on business miles as a proportion of your total mileage (business miles in the year divided by total miles in the year). If you end up with a three quarters of your mileage directly relating to the business then you can have three quarters of the total expenses. Ideally, as with all methods, you should record your mileage and then calculate a private use figure. However, if you have got to the year end without recording your mileage, an estimated percentage of private use will generally be OK, as long as it does represent your situation.

Mileage method – This method is easier if you are just making a few business journeys in your vehicle, but are mainly using it privately outside the business. To use this method you must be keeping mileage records!

Can claim:

Business mileage allowance at HMRC rate – for cars and goods vehicles (currently this is 45p per mile up to 10,000 miles and then 25p per mile) Extra journey costs such as toll charges, congestion charge and parking

Can’t claim:

• Private use mileage
• Fuel Repairs and MOT Insurance, tax and breakdown cover
• Cost of the vehicle – via tax capital allowances
• Penalties or fines

For this method journeys don’t all have to be made in the same vehicle e.g. if you have two family cars, you can include journeys in both.

The mileage rate is designed to take into account the costs of buying, running and maintaining your vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle i.e. its loss in value over time. You can’t make additional claims for any of these things. If you have claimed the cost of the vehicle through your business via capital allowances, then you can’t use the mileage method and must use full cost method instead.•

2. Ltd Company

For a limited company the expenses situation is slightly different because, in most circumstances, the director of a limited company is treated as an employee of the company. This affects who owns the vehicle and also impacts on the director’s personal tax through “benefits in kind”.

Full cost method – If you use the full cost method and claim capital allowances on the vehicle then it effectively belongs to the company. You, as an employee, have use of the company vehicle for business journeys. Unlike a sole trader who can make a deduction for any personal mileage, any private use of the company vehicle by an employee is classed as a “benefit in kind” and is subject to tax through your personal tax return. In short – if you use the full cost method then personal mileage needs to go on your personal tax return (and also P11D) at the end of the year. You need to think very carefully before bringing a vehicle into the company and using the full cost method. If it truly is a business vehicle with no personal use then this is the best method, but if you do make personal use of the vehicle then the mileage method is probably better.

Can claim:

• Fuel Repairs and MOT
• Insurance, tax and breakdown cover
• Cost of the vehicle – via tax capital allowances

Can’t Claim

• Private use element
• Fines and Penalties

Mileage method – Using the mileage method, the vehicle remains privately owned and you as an employee can claim a mileage allowance for any business travel. This is the best method if you are making a combination of business and personal journeys. Again this relies on keeping good mileage records throughout the year.

Can claim:

• Business mileage allowance at HMRC rate – for cars and vans (currently this is 45p per mile up to 10,000 miles and then 25p per mile)
• Passengers for business journeys at HMRC approved rate – (currently this is 5p per mile)
• Extra journey costs such as toll charges, congestion charge and parking

Can’t claim:

• Private use mileage
• Fuel Repairs and MOT Insurance, tax and breakdown cover
• Cost of the vehicle – via tax capital allowances Penalties or fines

For this method journeys don’t all have to be made in the same vehicle e.g. if you have two family cars, you can include journeys in both.

So back to the ‘Simple surely’ comment, well actually maybe not! Feel free to pick our brains to make sense of all this

richard@cheltenhamtaxaccountants.co.uk