If you need a vehicle for work and you've bought it on a business car loan, interest payments can be a major outlay. If the car's just for personal use, you won't be able to claim this money against tax. However, HMRC is a little more generous with business vehicles.
If you're a sole trader or partnership and your business' annual turnover was under the VAT threshold when you bought the car, you can use the 'mileage method' for claiming expenses. This is more formally known as HMRC's AMAP (Approved Mileage Allowance Payments) rate.
This rate, for cars, vans or motorcycles, pretty much covers everything, including servicing, repairs, MOT and wear and tear. However, the good news is that you can also claim the business portion of the interest on any loan you've used to acquire the vehicle.
Claiming it will be a case of working out the proportions of your personal and business car usage based on your mileage.
If you need help tracking your annual mileage, consider giving MileIQ a try.
It's a similar story if you're a limited company. If you take out a loan to purchase the vehicle or you buy it on hire purchase, again only the interest payments are an allowable company expense, although your business can also claim which Capital Allowances you can claim for your car depending on the CO2 emission levels for 2017/18 and for 2016/2017:
So you thought fuel was the biggest cost of running a car for business? You can probably guess where this is going. Yes, depreciation is the biggest expense you'll face. But what exactly is it and how does HMRC see it?
If you've ever bought a new car, you'll know that its value can plummet quite alarmingly. This is depreciation - the difference between your car's value when you bought it and what you get for it when you sell it.
This drop in value varies between makes and models, but a typical scenario is anything from 15-35% in year one and up to around half its new value after three years.
Over the course of three years, you'll probably spend around £4000 on fuel. But if you drive a medium-sized family car bought new, you'll lose around £12,500 of its value after three years. So it makes business sense to focus on picking a car that holds its value rather than one that's good on fuel efficiency.
If your CO2 emissions are 130g/km or below, you'll receive an annual 18% allowance.
If your CO2 emissions are above 130g/km, you'll get an annual 8% allowance.
You'll be entitled to First-Year Allowances for electric cars at 100% if your CO2 emissions are 75g/km or lower.
Car valuers Glass recently published a study of how well different makes of car hold their value and the annual rate of depreciation. Here are the top ten:
There are a number of factors that affect a car's depreciation rate:
There are ways you can manage and minimise depreciation:
In short, you can't get tax relief on depreciation charges. Rather, you can claim a 'Capital Allowance' on the cost of the equipment.
These allowances are set each year in the budget. They vary according to the type of equipment. They enable your company to claim corporation tax relief against the depreciation of assets you buy and use in your trade.
For example, if your business bought a car for £30,000, then sold it a few years later for £12,000, you'd be able to claim capital allowances of £18,000.
The Money Advice Service has a handy depreciation calculator. Just enter the registration number of the car you're thinking of buying.