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Taxes

How to Write Off Car Payments as a Business Expense?

Andre Spiteri
April 26, 2019
Pounds and coins on an HMRC form

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In the UK, a tax write off is more commonly known as a tax deduction. HMRC lets you deduct, or write off, an expense from your taxes if you use at least a 'definite proportion' of it 'wholly and exclusively' for business purposes.Here's a look at how business vehicle tax write offs work in the UK.

What counts as a car for tax purposes?

HMRC considers a vehicle to be a car if:

  • It's suitable for private use (this includes motorhomes)
  • Most people use this type of vehicle privately
  • It's not suitable for transporting goods
  • It isn't a van, lorry or motorcycle (different rules apply to these vehicles)

Can I deduct my car payments as a business expense?

If you purchase a car for business purposes, you can usually claim a deduction for capital allowances. This is also known as writing down allowance.The deduction could be the full purchase price or a lower amount, depending on:

  • Whether you're a sole trader or a limited company (sole traders have to account for personal use)
  • The car's CO2 emissions. The more it pollutes, the less you can deduct.
  • If you pay through a loan or hire-purchase finance, you can also deduct the interest on your monthly repayments.
  • If you're a sole trader and you claim capital allowances, you won't be able to claim the mileage deduction

To calculate how much of your car payments you can write off:

Step 1: Find out your car's value. This is usually what you paid for it. Or, if you owned the car before you started the business, it's the current market value. You can find this using HMRC's company car and car fuel benefit calculator.‍

Step 2: Using the Vehicle Certification Agency's online tool, find out your car's CO2 emissions.

‍Step 3 Work out your allowance using HMRC's writing down allowance rates. For ease of reference, we've included the latest ones in a table below.

‍Step 4: If you're a sole trader, you'll need to find out the business proportion of your usage. To do this, divide your business mileage by your total annual mileage, and multiply by 100 to get a percentage. You can only claim this percentage of the allowance in step 3.

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What is a closing balance?

Your closing balance, or tax written down value, is simply your car's value, less any capital allowances you've already deducted.Let's say you've bought a new car for £10,000. The car emits 80g/km of CO2, so it doesn't qualify for a First Year Allowance.You're a sole trader. During your first two years in business, you drove 12,000 miles per year. 6,000 were business miles and 6,000 were personal miles. This means 50 percent or half your usage was business-related.In the first year, you'd claim £10,000 x 18%, that is £1,800 divided by 2 (since only half your usage is business-related). So, you could write off £900. However, you can still deduct the full £1,800 from your accounts, so your closing balance would be £8,200In the second year, you'd write off £8,200 x 18%, that is £1467, divided by 2, so £738. And so on for as long as you keep the car, or your closing balance becomes zero.

How do I write off other vehicle payments?

Vans, lorries and motorcycles count as plant and machinery. This means they qualify for a capital allowance called an annual investment allowance.The annual investment allowance allows you to claim 100 percent of the purchase price, less any personal use, in the year you bought it. There's a limit to how much you can claim as capital allowances. The limit used to be £500,000 per year. However, as from 1 January 2016, it's down to £25,000 per year.

Example

You're a sole trader, and you've bought a van for £12,000 and a motorcycle for £3,000. You use them for business 80 percent of the time, with the remaining 20 percent being personal use.This means you can write off (£12,000 + £3,000) x 0.80 equals £12,000. Since this amount is under the £25,000 per year limit, you can write it all off from your taxes.

Can I write off other expenses from my taxes?

You can also deduct other car-related expenses from your taxes. These include:

  • Road tax
  • Insurance
  • Fuel
  • Servicing and maintenance

If you're a sole trader, you'll need to find out the business proportion of these costs by dividing your business mileage by your total mileage.

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MileIQ: Mileage Tracker & Log

MileIQ Inc.

GET — On the App Store

View
MileIQPricing
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In the UK, a tax write off is more commonly known as a tax deduction. HMRC lets you deduct, or write off, an expense from your taxes if you use at least a 'definite proportion' of it 'wholly and exclusively' for business purposes.Here's a look at how business vehicle tax write offs work in the UK.

What counts as a car for tax purposes?

HMRC considers a vehicle to be a car if:

  • It's suitable for private use (this includes motorhomes)
  • Most people use this type of vehicle privately
  • It's not suitable for transporting goods
  • It isn't a van, lorry or motorcycle (different rules apply to these vehicles)

Can I deduct my car payments as a business expense?

If you purchase a car for business purposes, you can usually claim a deduction for capital allowances. This is also known as writing down allowance.The deduction could be the full purchase price or a lower amount, depending on:

  • Whether you're a sole trader or a limited company (sole traders have to account for personal use)
  • The car's CO2 emissions. The more it pollutes, the less you can deduct.
  • If you pay through a loan or hire-purchase finance, you can also deduct the interest on your monthly repayments.
  • If you're a sole trader and you claim capital allowances, you won't be able to claim the mileage deduction

To calculate how much of your car payments you can write off:

Step 1: Find out your car's value. This is usually what you paid for it. Or, if you owned the car before you started the business, it's the current market value. You can find this using HMRC's company car and car fuel benefit calculator.‍

Step 2: Using the Vehicle Certification Agency's online tool, find out your car's CO2 emissions.

‍Step 3 Work out your allowance using HMRC's writing down allowance rates. For ease of reference, we've included the latest ones in a table below.

‍Step 4: If you're a sole trader, you'll need to find out the business proportion of your usage. To do this, divide your business mileage by your total annual mileage, and multiply by 100 to get a percentage. You can only claim this percentage of the allowance in step 3.

What is a closing balance?

Your closing balance, or tax written down value, is simply your car's value, less any capital allowances you've already deducted.Let's say you've bought a new car for £10,000. The car emits 80g/km of CO2, so it doesn't qualify for a First Year Allowance.You're a sole trader. During your first two years in business, you drove 12,000 miles per year. 6,000 were business miles and 6,000 were personal miles. This means 50 percent or half your usage was business-related.In the first year, you'd claim £10,000 x 18%, that is £1,800 divided by 2 (since only half your usage is business-related). So, you could write off £900. However, you can still deduct the full £1,800 from your accounts, so your closing balance would be £8,200In the second year, you'd write off £8,200 x 18%, that is £1467, divided by 2, so £738. And so on for as long as you keep the car, or your closing balance becomes zero.

How do I write off other vehicle payments?

Vans, lorries and motorcycles count as plant and machinery. This means they qualify for a capital allowance called an annual investment allowance.The annual investment allowance allows you to claim 100 percent of the purchase price, less any personal use, in the year you bought it. There's a limit to how much you can claim as capital allowances. The limit used to be £500,000 per year. However, as from 1 January 2016, it's down to £25,000 per year.

Example

You're a sole trader, and you've bought a van for £12,000 and a motorcycle for £3,000. You use them for business 80 percent of the time, with the remaining 20 percent being personal use.This means you can write off (£12,000 + £3,000) x 0.80 equals £12,000. Since this amount is under the £25,000 per year limit, you can write it all off from your taxes.

Can I write off other expenses from my taxes?

You can also deduct other car-related expenses from your taxes. These include:

  • Road tax
  • Insurance
  • Fuel
  • Servicing and maintenance

If you're a sole trader, you'll need to find out the business proportion of these costs by dividing your business mileage by your total mileage.

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