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Are daily car rental expenses tax deductible?

If you provide daily rental as a transport solution for your business, then it can be a fully allowable as a business expense. Deloitte’s Nigel Morris explains.
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Nigel Morris from Deloitte explains what expenses are tax deductible from daily rental car hire

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25 January 2008

Nigel Morris
Nigel Morris from Deloitte explains what expenses are tax deductible from daily rental car hire

By Nigel Morris, senior manager global employer services, Deloitte & Touche LLP

FOR many small businesses the use of partners to assist with important irregular tasks is essential – whether it is the auditor or daily rental company.

It would be costly to procure and run (say) a large estate car for the few occasions per year that it is required to move large loads.

Similarly, it would not be cost effective to provide an employee with a car for 365 days a year when they are only required to travel to visit customers three times a month.

The solution may therefore be daily rental – renting a car only for those periods it’s required.

However it may concern many businesses that the full costs can’t be reclaimed. Or that a taxable benefit-in-kind may apply.

When expenses are 100% reclaimable

But if the vehicle is used 100% for business and any private use is incidental – for example, an employee takes the car home in the evening to facilitate an early start/late finish – there should be no exposure to a benefit-in-kind company car tax charge or restriction.

This applies for short (say) one to three day hires once a month where use is purely business.

…And when restrictions apply

But what about longer periods?

As long as the car’s market value is less than £12,000*, the full cost of the rental would be allowable for tax, although a benefit-in-kind may apply with some additional benefit-in-kind and NIC costs and benefit-in-kind reporting. Also, less than 100% of the VAT from the rental could be reclaimed.

If the car costs more than £12,000 the expensive car leasing disallowance would apply – this caps some of the rental allowable against tax. However, 100% of the VAT from the rental could be reclaimed in some circumstances.

Further information

  • Read how architectural visualisation specialists, Rock Hunter, uses daily rental as a transport solution – click to read How we run our business cars: Rock Hunter
  • Further Deloitte business car advice can be found at www.cartax.co.uk.
  • This advice correct at time of posting – January 2008.

 

*Editor’s note: since this was written the lease rental rule restrictions have been changed. They are now based on CO2 emissions. Cars with CO2 emissions up to 130g/km have no restriction; 131g/km above are restricted by 15%.

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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