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