Vehicles for the Self-Employed
Alex Shepherd • 4 November 2021
Purchased Vehicles - Capital Allowances
If you have purchased a vehicle for use in the business then you can deduct part of the value from your business profits using the capital allowances. To do this you will need to use writing down allowances. The amount of allowance will depend on the rate which is set by HMRC. This rate is determined by the age of the vehicle, when the vehicle was purchased and the Co2 emissions. Its worth noting that you cannot use the Annual Investment Allowance (AIA) for cars but you can for other plant and machinery including vans. The AIA means you can deduct the full cost from your profits in your first year of trading, if necessary.
The amount of allowance agreed by HMRC is heavily influenced by the environmental factors of the vehicle (rightly so) and this shows in the main rate (18%) allowance from vehicles bought from 01/04/21 being only applicable on vehicles with an emission rate of 50g/km or less, including electric. Anything above will be calculated at 6% of the writing down value of the vehicle.
You can claim 3 times more against your profits when you purchase a more environmental friendly vehicle!
You can find more information on the rates and allowances for purchased vehicles here.
Hire Purchase, Lease and Personal Contract Purchase Agreements
Vehicles that are used for business that are on a HP or PCP can also be allowable against business profits.
For HP and leased vehicles, the monthly 'hire' payments are classed as an allowable expense and all of this amount can be deducted against profits. If a deposit is required or an upfront payment this should be spread over the term of the agreement.
For PCP, the amount that can be claimed is worked out slightly different with the addition of using the writing down allowances if the vehicle is purchased at the end of the agreement.
Actual Costs Method VS Simplified Method
The above methods are all 'actual cost' methods of calculating your expenses for vehicles. In addition, the actual cost method also allows you to claim for repairs, MOT and servicing, fuel, parking and any other costs, excluding any parking fines and tickets.
The simplified method is calculated by multiplying business mileage by 45p for the first 10,000 miles and then 25p thereafter. Using this method you cannot also claim for repairs, fuel and other running costs of the vehicle.
Mileage Logs
All businesses with vehicles, regardless of the calculations used must keep mileage logs for business and personal mileage in order to correctly calculate the business mileage for the vehicle.
You must tell HMRC on your self assessment how much mileage was incurred for personal trips, and the calculation used.
You can keep mileage logs in any way you see necessary; pre-made templates, calendar entries, excel spreadsheets or pen and paper kept in the glove box. The important part is that you do actually record this expense.
It is important to remember that your personal usage will also have to be taken into consideration when calculating any business expenditure. For example if you use your vehicle 25% for personal trips then when you calculate the actual costs or the simplified costs, only 75% of the amount incurred will be allowable as an expense.
You can find more information on the GOV website.
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