Business Vehicle Depreciation Deduction

Andre Spiteri
calculation vehicle depreciation value

As sad as it is, that shiny new car you just drove off the lot will start losing value as soon as you hit the tarmac. In fact, according to the AA, a car's value can depreciate by up to 40 percent in its first year.But is this vehicle depreciation tax deductible? Or do you have to resign yourself to seeing your car lose its value without getting any benefit out of it? Let's find out.

Is business vehicle depreciation tax-deductible in the UK?

Not exactly. You can't deduct depreciation from your income as you would other costs, such as your mileage. Primarily because a business vehicle is an asset, not an expense — something you'll be using in your business for at least a few years.That said, you can still deduct part of your car's value from your profits (and pay less tax). To do this, you'll have to claim capital allowances.

What are capital allowances?

Quite plainly, capital allowances are a way to deduct the cost of assets, such as cars, which you use in your business. This method is also known as a writing down allowance. How much you can deduct will depend on whether you're a sole trader or a limited company and on your vehicle's CO2 emissions.

When can I claim capital allowances on a business vehicle?

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You can only claim capital allowances on cars. HMRC considers a vehicle to be a car if:

  • It's suitable for private use, including a motorhome.
  • Most people use it privately.
  • It wasn't built for transporting goods.
  • Motorcycles bought after 6 April 2009, lorries, vans and trucks don't count as cars. These qualify for an annual investment allowance, which means you may be able to deduct the full price from your taxes, less any personal use.

You can't declare capital allowances if you claim a mileage deduction. It's either one or the other.You also can't switch between the two methods. In other words, you can't claim capital allowances one year and a mileage deduction next year.

How do I claim capital allowances?

To work out your capital allowances:

  • Find out how much your car is worth. If you bought the car specifically for business, this is what you paid for it. If you owned the car before you started working for yourself, it's the car's current market value. You can find this on HMRC's company car and car fuel benefit calculator.
  • Determine your car's CO2 emissions using the Vehicle Certification Agency's online tool.
  • Use HMRC's writing down allowance rates to work out your allowance.
  • If you're a sole trader, deduct personal use.

What if I claim a mileage deduction?

HMRC's approved mileage allowance payment rates, or AMAP, cover the cost of depreciation. This compensation means that, when you claim a mileage deduction, you're automatically claiming tax back on your car depreciation too.Hopefully, you're now much clearer on how to claim car depreciation on your taxes. But if all these numbers make your head spin, claiming the mileage deduction could be the way to go.