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20/05/18 17:55

Tax Relief on Cars - a disappointment to many...

I'm often asked by clients to explain the tax relief available for Cars bought and used in the operation of their business.

The cost of car is a major and significant amount of expenditure for business owners, with an inevitable private use element, and an element of fashion, and for these two reasons, HMRC have never given cars the same straight forward treatment as Plant and Machinery. To remind you, Plant and Machinery currently qualifies for 100% tax relief in the year of acquisition. Buy a £10,000 machine, your taxable profits are reduced by £10,000.

By contrast, a car's tax relief depends on its CO2 emissions. Most cars will only qualify for 8% relief. Cars with better CO2 emissions will get 18%.

What this means is that if you purchase a £15,000 car, the 8% deduction from your taxable profit is £1,200, subject to private use. Private use? It is deemed unlikely that you use your car 100% for your business. Domestic use is clearly not business use, and HMRC expect to see a measure of private use deducted from the annual relief. This depends on your circumstances and your records, but if we assume 25% private use, in the above example, the deduction is therefore reduced to £900.

If your business is making over around £11,500 per annum, this £900 deduction saves you £261 in income tax. That's not a lot when compared to the £15,000 cost of the vehicle, hence the disappointment.

For suggestions, alternatives and further explanations, please contact us.

Tax Relief on Cars - a disappointment to many...

Written by: Norman Elliott FCA
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