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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Car tax comparison

Customer Question

Hi, I have just purchased a car for business use. It was £12,500. I would do roughly 14,000 miles a year. On a yearly basis how great are the savings between having the car as 100% business use only and using the car part personal part business? The Co2 of the car is 159.

Thanks Adrian

Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

What do you mean by "savings" exactly? What does part business, part personal use mean in percentage terms? I cannot do any calculations without a numerical split between business and non-business use. How did you pay for the car, all cash, all finance, part cash, part finance? Are you a sole trader or do you run your business through a limited company?

Customer: replied 3 years ago.

well I have been using 1 car mainly for business use for the last few years and been claiming the standard pence per mile for all business mileage.

I would now like to keep my current car for 100% personal use and the new car would be 100% business use.

I know for this every mile has to be logged. My current account said "substantial" savings could be made doing things this way.

I paid for the car 7000 finance, 5500 cash. I run my business through a limited company, me being the sole shareholder and director. As the insurance costs to insure the new car for business only are much more expensive, i'm trying to work out how much money i can save/ is tax deductible declaring a car completely for business use, compared to the business/personal way I am currently using.

Expert:  TonyTax replied 3 years ago.

Thanks.

Did you buy the new car personally or has the company bought it?

Customer: replied 3 years ago.

bought personally,

thanks

Expert:  TonyTax replied 3 years ago.
Thanks.

I'll finish drafting my answer.
Customer: replied 3 years ago.

thanks, ***** ***** to mention that i'm also VAT registered, sorry!

Expert:  TonyTax replied 3 years ago.

Hi again.

You say that you have been claiming the standard pence per mile for business use of your own car. I assume that you withdrew the money from the company tax free as opposed to simply claiming tax relief in your own tax return which would be worth much less in cash terms.

As for the new car, since you own it personally as opposed to it being owned by your company, you cannot claim capital allowances as an employee/director unfortunately. Employees cannot claim capital allowances for cars. Sole traders and limited companies can. All you can do is claim the standard 45p/25p mileage allowances from your company each week or month as described here and which you appear to have been doing already with your other car. That money (£5,500 for 14,000 business miles) will be tax free in your hands and the company will be able to claim it as an expense which will save it 20% in corporation tax. Alternatively, you could charge the running costs to the company since there will be no private use but that's not normally how its done. That's what the mileage allowance is for.

If the car was owned by your company and it was not available for private use there would be no taxable employee car benefit. Normally, an employer would put a private use ban in a document so that they and the employee could avoid the taxable benefit implications. In your case, you are your own boss so the concept of you banning yourself from the private use of the car is difficult.

The company could claim capital allowances on the car to write off the cost against its income at the rates set out under the heading "Capital allowances on cars" here. The percentage of the cost that can be claimed each year is determined by the CO2 emissions level of the car. So, on a car costing £12,500 with CO2s of 130g/km or less, the company could claim a capital allowance in year one of £2,250 (18%) saving £450 in corporation tax at 20%. In year two, the claim would be £1,845 (£12,500 - £2,250 x 18%) saving £369 in corporation tax at 20%. Each year the claim is reduced compared ot the year before as the cost of the car is gradually written down for tax purposes.

If your company is registered for VAT, it can reclaim the VAT on the purchase price in very limited circumstances as set out here. The company will also be able to reclaim the VAT on the car running costs. The cars running costs including finance costs will be allowable expenses.

You would need to sell the car to your company for it to be able to claim capital allowances and tax relief for the running costs but you may find that a problem given that you have finance on it (unless the finance is a personal loan not secured on the car).

I hope this helps but let me know if you have any further questions.

TonyTax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

thats very helpful, thanks very much

Expert:  TonyTax replied 3 years ago.
Thanks for accepting my answer. You can post any follow up questions on the same topic here as the question stays open.
Customer: replied 3 years ago.

I have already rated your answer but continue to receive numerous emails still asking to rate the answer.


I have had around 10 today, can you please stop this from continuing.


 


 


 


 


 


r

Expert:  TonyTax replied 3 years ago.
I'm sorry about that. I will pass your message to just answer as I have no control over the emails I'm afraid. I just answer questions on UK Tax.