There are two ways of claiming for motor expenses if you are below the VAT threshold, one based on business mileage and the second on actual expenses. Mileage is usually more tax efficient and is much simpler to track. If you wish to compare the claims details on how to calculate the deduction using both methods are below. In addition, you can also claim for business parking, congestion charges, tolls and the interest on loans used to purchase the vehicle. Motoring fines for parking, speeding etc are not allowable.
Interest on car loans.
To calculate the deduction you apply the business percentage by the interest paid. We recommend preparing a full reconciliation and for this you will need:
- The date the loan was taken out.
- The amount borrowed
- The charges for arranging the loan.
- The payment schedule (ie first payment £250 then 34 monthly payments of £200 with a final payment of £150).
- The business use percentage.
Most of this information will be on the loan agreement documentation.
You can claim 45p for the first 10,000 business miles and 25p thereafter together with an extra 5p per mile for each extra business passenger per trip. The detailed instructions on this can be found here.
You must keep a detailed log of business mileage for each business trip in support of the claim. A spreadsheet for this can be downloaded by click this download – Mileage and a video explaining how it works is here.
For employees claiming mileage the employer can also reclaim the VAT on petrol and maintenance but you will have to retain receipts in support of this.
To make a claim for actual costs you add up all your outgoings for:
- road tax
You then apply the business percentage to the total.
The claim for the actual cost of the vehicle (known as capital allowances) is now based on the list price and the level of carbon emission. You should be able to get this information from the manufacturer’s website. The Revenue’s directions on how to claim can be found here. For vans you can usually claim 100% in the first year.
Buying or leasing.
For tax purposes there are two types of contract. Firstly, where the business owns or will own the car by the end of the contract or where your business rents/leases the car without ever owning it.
If you buy a car or sign a contract, e.g. hire purchase, which ends in ownership, you can claim capital allowances, see above. Capital allowances take the actual cost and an annual deduction usually between 8% and 18%. This is then given over a number of years. The percentage is dependent on the CO2 emissions; the lower the emissions the higher the percentage.
A tax deduction for 85% of the rental payments can be claimed. If the car has CO2 emissions of 130g/km CO2 or less, you can claim the full cost of the charges. The tax relief for leasing or buying is much the same in the long run. Consider your cash flow circumstances and choose the deal that best suits you.
Purchase of vehicle.
You can claim the VAT on the purchase of the vehicle if it is:
- used exclusively for business and
- not made available for private use.
For most business vehicles input VAT cannot therefore be reclaimed. The Revenue accept that the input VAT on the cost of commercial vehicles used for business purposes including taxis or driving instructor’s teaching cars can be claimed . Where cars are leased 50% of the input VAT on qualifying car lease payments can be recovered.
- Fuel bought wholly for business use and be claimed in full.
- If a car fuel is used for both business and private use then you can claim the full input VAT and deduct a scale charge. Many clients just do not claim the VAT on fuel.
- If you reimburse or claim mileage at HMRCs approved rates, you can claim back input VAT on a proportion of the mileage reimbursed.
Other running costs.
You can usually reclaim the VAT for:
- all business-related running and maintenance costs, eg repairs or off-street parking
- any accessories you’ve fitted for business use
You can reclaim the VAT on fuel and other running costs even if you can’t reclaim the VAT the vehicle itself.
What can be claimed?
A business can claim 100% of the input tax on the purchase of the van and up to 100% of the cost in the year of purchase through Capital Allowances. A company can supply the van to a director or employee tax free if the private use is “insignificant”. Where there is significant private use a benefit in kind arises (£3170 for 2016/17). If the company pays for fuel there ios also a fuel benefit (£598 for 2016/17). The company then claims all the running expenses. The interest on a loan used finance the purchase can also be claimed. For a partner or sole trader the capital allowances, interest and running expenses are adjusted for private use.
What is a van?
A van is:
- A vehicle of a construction primarily suited for the conveyance of goods or burden of any description (not people).
- With a design weight (the weight which the vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden) not exceeding 3,500 kilograms.
- A double cab pickup is classified as a car or a van following its VAT classification.
HMRC notes on vans can be found here.
Published 13 September 2017.
Updated 11 April 2018.