Worried about your tax bill?

You can save money on your tax bill by claiming car expenses. And with the new electric car subscription service, it’s easier than ever to get started.

We know that the thought of doing your taxes can be daunting, but lowering your tax bill is definitely worth it.

So take a few minutes and read through our article – it could end up saving you a lot of money!

First, let’s take a look at what business expenses are allowable.

What Business Expenses are Allowable?

  • Vehicle insurance
  • Repairs and servicing
  • Hire charges
  • Breakdown cover
  • Fuel
  • Road tax
  • Maintenance
  • Charges for electricity and water
  • Wages and salaries
  • Train, bus, air, and taxi fares
  • Accommodation
  • Meals on overnight business trips
  • Parking
  • Charging

You cannot claim for:

  • non-business driving or travel expenses
  • fines
  • travel between home and work

The above list is not exhaustive but gives you an idea of the types of business expenses that are allowable for corporation tax purposes and ones that are not.

So, what about electric car subscriptions? Are they allowable as a business expense?

Tax Deductible Car Subscriptions for Companies

You don’t own a car if your company has an electric car subscription. As a result, you can deduct your monthly subscription payments as a business cost. nevertheless, for cars with CO2 emissions above 130g/km, there is a 15% flat-rate disallowance of relevant payments.

For tax purposes, 15% of the cost is not permissible. Of course, insurance and taxes are included in the expenses of operating your vehicle under Corporation Tax.

Related: Do Electric Cars Pay For Themselves?

Reclaiming Value Added Tax on a Car Subscription

You can get back half of the VAT on a subscription if you have some personal miles on your vehicle. If the car is solely used for business, you will receive 100 percent of the VAT refunded on the subscription.

For a van, you may get 100 percent back in all situations. They’re also 100 percent VAT deductible if you get a maintenance plan with your contract. You can also reclaim half the VAT on the subscription if you need to hire a vehicle through the firm because one of your cars isn’t running.

Self-Employment Tax Deductions

You would be right in thinking that as a self-employed person, you can deduct some of your car running costs as business expenses. However, it’s more complicated than you think.

Let’s take a look.

What is considered business travel?

If you’re looking to claim business millage, then that’s exactly what it is supposed to be, “business mileage.”

Your daily commute to and from work (according to HMRC) is not considered as “business miles” and you are not going on a business trip.

Sole traders

The full-cost method, which includes the cost of fuel, is only available to VAT-registered sole traders or partnerships. It all depends on how much business use your car gets.

Full-cost method 

The full cost method is only available to VAT-registered sole traders or partnerships. You can only use this method if your car is used for business purposes more than 50% of the time.

Under the full cost method, you can claim back all of the fuel costs and a proportion of the other running costs, such as insurance and repairs. The proportion you can claim depends on how much business use your car gets.

Claim for:

  • Car repairs and MOT.
  • Fuel.
  • Road tax, insurance, breakdown cover.
  • The capital cost of buying the vehicle.

Don’t claim for:

  • Private use element.
  • Speeding fines and other offenses.

‍Simplified method 

The simplified method is available to all sole traders and partnerships, whether or not they are VAT-registered. You can use this method if your car is used for business purposes less than 50% of the time.

Under the simplified method, you can claim a fixed amount for each business mile you travel, known as the mileage allowance. The mileage allowance for 2019/20 is 45p per mile for the first 10,000 miles and 25p per mile thereafter.

So, how do you figure out the private-use method?

Divide your annual business miles by your total mileage to find out how much you’ll save. It’s critical to keep track of all your travels and then calculate the private use rate afterward. If you don’t maintain a good record, you can provide an educated guess based on what is known about your driving habits.

Mileage method

This is most effective if you use your car only privately and seldom for business trips. It’s critical to keep track of all your traveling using this method, as it won’t work unless you do so.

Is it true that VAT registration has an influence on motor costs?

What if you’re VAT-registered and claiming mileage expenditures? What you may claim, as well as how to do so, differs slightly.

Sole traders

If you’re a single trader, the mileage technique for VAT won’t work since your turnover meets the VAT threshold. If you’ve signed up for VAT voluntarily but aren’t making enough money, you’re in good shape. So, stick to the full-cost method, but keep in mind that claiming fuel costs comes with its own set of issues.

Limited company

VAT is charged on the cost basis or mileage allowance of limited companies, depending on their size. Limited companies can utilize either the full-cost or mileage method for VAT.

You may claim VAT only on the gasoline component of your mileage allowance using the mileage technique. It’s worth noting that while fuel use is taken into account, the “wear and tear” of the car isn’t.

Key Takeaways:

  • If you’re looking to claim business millage, then that’s exactly what it is supposed to be, “business mileage.” Your daily commute to and from work (according to HMRC) is not considered as “business miles” and you are not going on a business trip.
  • The full cost method is only available to VAT-registered sole traders or partnerships. You can only use this method if your car is used for business purposes more than 50% of the time.
  • The simplified method is available to all sole traders and partnerships, whether or not they are VAT-registered. You can use this method if your car is used for business purposes less than 50% of the time.
  • Under the simplified method, you can claim a fixed amount for each business mile you travel, known as the mileage allowance.

FAQs

Are electric car subscriptions tax deductible in the UK?

Yes, electric car subscriptions are tax deductible in the UK. You can claim for the capital cost of buying the vehicle, as well as for other running costs such as insurance and repairs. The proportion you can claim depends on how much business use your car gets.

Do electric cars pay road tax in the UK?

No, electric cars do not pay road tax in the UK. This is because they emit no emissions and so are exempt from vehicle excise duty (VED).

Do I need to be VAT-registered to use the full-cost method?

Yes, you need to be VAT-registered to use the full cost method.

About the Author

Passionate about helping households transition to sustainable energy with helpful information and resources.

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