IF YOU operate your business as a sole trader, then all your sole trader business car motoring expenses can be met by the business, provided all private motoring elements are deducted.
That’s because the tax position of the sole trader is very different to the limited company.
If you are a sole trader, your business only exists as a trading medium.
It does not ‘exist’ as a separate entity – unlike a limited company.
Therefore, a sole trader can keep a car (or van) in their own name on the registration V5 document.
All the business car running costs can be paid for by the business. Then the trader – or more likely their accountant! – deducts a fair proportion as private usage. The remainder is left as a business expense.
Similarly, the capital allowances on the cost of the sole trader business car can be claimed by the business – minus the ‘private’ proportion again.
Or, if the vehicle is funded by hire purchase, or contract hire payments, these can be claimed, too (minus the private element).
However, HMRC does expect the trader to keep a proper log of business mileage. If this isn’t done it might weaken a trader’s case if they were to be investigated.
It is important to demonstrate that the business/private mileage split being claimed – whether 80/20, 60/40 or 50/50 – is genuine.
There is also no company car tax to worry about.
Key points for sole trader business car motoring expenses
- All running costs can be met by the business – less private proportion
- Funding payments can also be claimed – less private proportion
- VAT can be re-claimed on fuel expenditure – less private proportion calculated using the HMRC VAT Road Fuel Scale Charge
- 100% VAT reclaimable on servicing and repair items
- No company car tax liability
Tim is an accountant. He can be found at www.thetaxpartnership.com.