Tax Allowances A Sole Trader Can Claim While Buying or Leasing A Vehicle

Driving is a necessary part of business for self-employed people. It’s an easy and quick way to travel for business related work, getting supplies, delivering products, going to attend customers or clients, or making site visits.

There are many common questions that self-employed people face regarding tax returns to consider. Below we will discuss some allowances that can be claimed for vehicle leasing, buying, mileage or other related expenses.

Mileage Allowance

In simple terms, it is the tax claimed for the cost of usage of the vehicle. Let us see what you can claim based on the vehicle

You can claim 45p per mile of business usage traveled in a car or van for the first 10,000 miles in any year, and 25p per mile thereafter.

For motorbikes, 24p per mile for business travels 5p extra for any worker accompanying you as a passenger for business travels.

You can also claim for other business travels made such as taxi fares and train tickets.

However you cannot claim for travel expenses if it’s not wholly and exclusively for business related purposes, when you are traveling to and fro your usual place of work. You cannot claim for cars specifically built for commercial use or built with dual control and also for cars you have already claimed capital allowance.

Outright Purchase

If you purchase a car, tax can be claimed under the capital allowance which will allow you to claim a portion of the car’s cost as a tax deduction every year.
But a reduced amount must be claimed to allow for any non-business usage of the car.

The C02 emissions of the car decides the rate at which capital allowances can be claimed. For example, If you purchase a car with CO2 emissions over 50g/km, then a rate of 6 per cent a year capital allowances can be claimed.

And if the car emits less than 50g/km then a more generous rate of capital allowances of 18 per cent a year is available.

Hire Purchase

The tax claims for a ‘traditional’ hire purchase will be the same as an outright purchase, as stated above. The tax deduction will be calculated on the total value of the vehicle and its CO2 emissions and not based on the payments made each month.

Contract Hire

If you lease a vehicle under a contract hire arrangement, it will allow a deduction for a proportion of the total lease payments. The amount of deduction will depend upon the CO2 emissions and the amount of business usage of the vehicle.

A percentage of the total lease costs can be claimed based on the amount of business usage of the vehicle only if the CO2 emissions are less than 50g/km then.

However, if the CO2 emissions are over 50g/km then there needs to be a further reduction of 15 per cent when calculating the amount of tax deduction that can be claimed.

Personal Contract Purchase (PCP)

The treatment of personal contract purchase depends on the terms of the agreement. If it is stated in the agreement that you are most likely to take ownership of the vehicle at the end of the term then it’s possible that the vehicle will be treated in the same way as a hire purchase agreement.

However, the majority of PCP agreements provide for a final balloon payment which approximates to the expected market value of the vehicle. In such cases the lease would likely be treated like a normal contract hire agreement.

A lot of things need to be considered while purchasing a new vehicle. Before you buy a car or a van you need to figure out the most tax efficient way and overall cost-effective method of ownership for your type of business.

You must also consider whether an electric vehicle will meet your business needs as the tax treatment for an electric van or vehicle is significantly more attractive.

All these factors will help you decide the best way to move forward.

However, for expert advice on tax claims for your vehicle CoreAdviz is always by your side. We extend professional guidance from decision making to claiming your yearly tax returns for your leased or purchased vehicle. Our aim is to make the entire process easy and least stressful for you. For any tax related help, we are just a phone call away.