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.