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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14046
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I self employed (sole trader) and I do seasonal work. I am

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I self employed (sole trader) and I do seasonal work. I am estimating that my profits are going to be too high by the end of March, and I may lose my entitlement to tax credits. I am thinking of buying a car through my business, which would in turn lower my income and keep my tax credits safe!
Am I correct in thinking that I could by a low emissions car (95g/km) by the end of this tax year, and write it off under the First Year Allowance.
For example, if I bought a car for £12000.00 and used it 50% business use and 50% personal use, I could write off £6000.00? - or is there a another way?
Submitted: 9 months ago.
Category: UK Tax
Expert:  Tony Tax replied 9 months ago.
Hi.

Take a look at the document here and here for some information on the capital allowances available for cars depending on their CO2 emissions.

If you buy a car with CO2 emissions of 95g/km or less, you will be able to claim a 100% first year allowance against your bsuiness profits with a reduction in that allowance to reflect non-business use, 50% in your case. Alternatively, you can claim a reduced first year allowance with the balance of the expenditure being available for writing down allowances at 18% of the reducing balance in future years.

I hope this helps but let me know if you have any further questions.
Customer: replied 9 months ago.
Can you still claim mileage allowances, and things like insurance costs and repairs etc...
Expert:  Tony Tax replied 9 months ago.

If you are self-employed, you can claim capital allowances on the cost of the car and the actual running expenses of the car which include fuel, insurance, repairs, servicing, road fund licence, MOT etc. The running costs would need to be adjusted for non-business use in the same way that the capital allowances would.

 

You would not claim a mileage allowance if you are claiming capital allowances. You would claim the actual running costs. The mileage allowance is set at a level which is deemed to cover all the running costs and the depreciation in the value of the car. Take a look here for more information on this.

Customer: replied 9 months ago.


So...am I right in thinking that if I claimed the FYA for the low emission car, I would be able to also claim 50% of the running costs (under Allowable Expenses section of the Self Assessment form) which would include:


 



  • repairs

  • servicing

  • fuel

  • parking

  • hire charges

  • vehicle licence fees

  • AA/RAC membership

  • train

  • bus

  • air and taxi fares

  • hotel room costs and meals on overnight business trips after deducting the private use proportion.


 


... Instead of using the 45p mileage rate?

Expert:  Tony Tax replied 9 months ago.
That's correct.

The mileage rate is a simple way of claiming for the totality of the costs of buying and running a car. Clearly, once you have written off the cost of the car by claiming capital allowances that has gone and all you can claim are the business use element of the running costs. With the mileage allowance, you would claim it as long as you had the car. Once you have chosen a method you have to stick with it as long as you have the car.
Customer: replied 9 months ago.

What would the situation be if I bought the car on a finance deal? Can I still put it through as a FYA for the full amount (50% of the cost in my case) and if so, can you claim relief on the interest if there is any?

Expert:  Tony Tax replied 9 months ago.
If you are buying it, whether you pay cash or borrow the money is irrelevant as far as capital allowances is concerned. You will also be able to claim the business use proportion of the interest.
Customer: replied 9 months ago.
Another scenario: If I buy a car for say £12000, but only have £2000 profit, would that be recorded as a £4000 loss for the year, and carried over to the next year? (I would be putting £6000 of my own cash into it, to make it 50/50)
Expert:  Tony Tax replied 9 months ago.
How long have you been trading?
Customer: replied 9 months ago.
Since October 2010.
Expert:  Tony Tax replied 9 months ago.

Thanks.

 

If you used the car 50% for business, the first year allowance is £6,000 and the loss is £4,000.

 

Take a look here for guidance on using trading losses. In summary, these are your options:

1 You can carry forward the loss for offset against future profits from the same business only.

2 You can offset the loss against other income in the same tax year or the previous tax year including trading profits of the earlier year. If you had no income in those years, you can offset the loss against capital gains.

3 For losses incurred in the first four years of a business, you can claim relief against income of the three previous tax years, earliest year first.

Customer: replied 9 months ago.
If I were to go for option 1 (carry forward) how would it affect tax credits, as I would be reporting a nil profit...
Expert:  Tony Tax replied 9 months ago.

See step 3 for the tax credit treatment of trading losses here.

Customer: replied 9 months ago.
So, in effect reporting a loss would in fact increase my tax credit entitlement, and reduce my tax liability until the loss is cleared...
Expert:  Tony Tax replied 9 months ago.
That's correct.
Customer: replied 9 months ago.
I read somewhere that if I were to buy the car towards the end of the tax year and use it for business only during that time, that I could claim 100% relief for the cost of the car as business use.. Is this common practice?
Expert:  Tony Tax replied 9 months ago.
Your claim should be based on the reality. If you only use the car for business in the accounting period dring which you buy it, then you can male a claim for 100% of the cost and the running costs. If in year two, you use it business 50% of the time, then you can only 50% of the running costs.
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14046
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
Tony Tax and 3 other UK Tax Specialists are ready to help you
Customer: replied 9 months ago.
How would a FYA work if the car was on a lease hire deal (eg Peugeot's 'Just Add Fuel'. ) How is relief claimed in that situation?
Expert:  Tony Tax replied 9 months ago.
If you don't buy the car, you get tax relief for the lease rental payments depending on the CO2 emissions. The details can be found here.

If the car has CO2 emissions in excess of 130g/km then the tax deductible lease payments are reduced by 15%. A further disallowance is made for non-business use. For cars with CO2 emissions at 130g/km or less there is no disallowance other than for non-business use.
Customer: replied 5 months ago.
I sm still thinking of buying a low emission car before the end of this tax year. I am still self employed working 31 hours per week, but am also taking on another part time job from next week (11 hours per week) - which is not a self employment (in the contract it says I can claim a mileage allowance for any mileage incurred.)
How would I account for the business use, if say I use it 50% for my self employment, 20% for my other part time employment, and the remaining 30% as personal use. (I'm confused on how to do it as I know I cant claim mileage for 1 job and a FYA for the other!) - or would I be better just claiming 70% use for my self employment, and not bring the new additional job into it...
Expert:  Tony Tax replied 5 months ago.
If I were you, I'd claim the milage allowance for your self-employment instead of the FYA and the mileage allowance from your employer for business mileage. However, that would preclude you from claiming the running costs.
Customer: replied 5 months ago.

I'm not expecting to do too much travelling as far as mileage costs go, and feel that claiming a FYA would have greater benefits in the long run as far as my tax liability goes...(would help increase my tax credits as well...)

Expert:  Tony Tax replied 5 months ago.
I cannot see you being able to claim both capital allownces and mileage allowance on the same car, albeit in different situations. That would make any mileage allowance you receive taxable income.
Customer: replied 5 months ago.

I understand that - so, would I be able to claim the FYA for business use over the two jobs, or would it be easier to just claim the 70% use for the one job ( self employment. ) and not bother claiming for the part time job...

Expert:  Tony Tax replied 5 months ago.
An employee cannot claim capital allowances for cars I'm afraid. Employees can only claim the mileage allowance. You should only claim for the self-employment use percentage against that business income.

Let me look at the allowances/mileage allowance situation and I'll get back to you later.
Customer: replied 5 months ago.
Can I also double check with you how a First Year Allowance affects Working Tax Credits. Would it qualify as a 'loss' in Tax Credit Terms, and can any surplus be carried over into future year/s as applicable.
Expert:  Tony Tax replied 5 months ago.
For tax credit purposes, your income is your adjusted profit which is the profit after adding back disallowable expoenses and deducting capital allowances including first year allowances. Take a look here for confirmation.

If you didn't claim a FYA, you would be reducing your profits for tax credit purposes by smaller amounts of capital allowances in the first and subsequent years. You can carry forward a loss for tax credit purposes. The link above has an example of how this works.
Customer: replied 5 months ago.
If I had an income as an employee of £10000.00 for this tax year, (earned between April and July) and a £9000.00 loss from my self employment for this tax year, am I right in thinking that I would be able to offset the loss (self employment) against my income as an employee, (the £10000.00) therefore showing an income of £1000 for tax purposes and Working Tax Credit Purposes, for this tax year...
Expert:  Tony Tax replied 5 months ago.
Yes, that's correct.
Customer: replied 5 months ago.

Going back to your previous advice: 'An employee cannot claim capital allowances for cars I'm afraid. Employees can only claim the mileage allowance. You should only claim for the self-employment use percentage against that business income.
Let me look at the allowances/mileage allowance situation and I'll get back to you later.'



Am I allowed to claim 70% business use for the self employment; 20% mileage allowance on the other employment; and 10% Personal use - all on one car...

Expert:  Tony Tax replied 5 months ago.
You cannot claim capital allowances on a car as an employee. You should be able to claim the mileage allowance for the business mileage you do on a self-employed basis and business milage you do as an employee.
Customer: replied 5 months ago.

...So it can't be split between the two jobs for one car?

Expert:  Tony Tax replied 5 months ago.

If you are referring to capital allowances then the answer is no they cannot be.

Customer: replied 5 months ago.
Only the 70% business use (from the self employment) would be used as the capital allowance. The remaining 30% would be 20% for business mileage as an employee, and 10% personal use... Would these not comply?
Expert:  Tony Tax replied 5 months ago.
Do you mean claiming business mileage allowance for business use in your car alongside capital allowances for your self-employment?
Customer: replied 5 months ago.
Yes...
Expert:  Tony Tax replied 5 months ago.
If you had a car and you were self-employed and you wrote off the cost against tax using capital allowances, then you ceased self-employment and started to be an employee using the same car for business travel, you would be able to claim the mileage allowance even though you have written off the cost of the car for tax purposes.

What I've not been able to find out is if you can claim capital allowances as a sole trader at the same time as claiming the mileage allowance as an employee on the same car. When I think about it, I don't see why not but as I said, I haven't been able to find a definitive answer.

If I were you I'd make both claims.
Customer: replied 5 months ago.
Going back to buying a low emission car on a 100% first year allowance: What happens if the car is sold after a couple of years - do the proceeds then become taxable? - and if so, is there a time limit for this rule to expire...
Expert:  Tony Tax replied 5 months ago.
You only get capital allowances on the net cost to you of an asset. So, if you buy an asset for £10,000 and claim £8,000 in allowances before selling it for £6,000, the net cost to you of the asset will be £4,000. There will, therefore, be a clawback of £4,000 of the allowances you have had which will be added to your profit for the year in which you sell the asset.

There is no time limit but with the passage of time, the value of the asset will fall, thereby reducing the clawback of capital allowances. If you withdraw the asset from the business, it will be treated as having been sold at market value.
Customer: replied 5 months ago.
On the understanding that I can claim the running costs of the car as a business expense, say 80% business, 20% personal, can that ratio be changed if business/personal circumstances change from time to time... (If, for example, I found in a couple of years time that it had become 60% business, 40% personal...)
Expert:  Tony Tax replied 5 months ago.
You claim whatever the business proportion is at any particular time.
Customer: replied 5 months ago.
...So it could vary from month to month...
Expert:  Tony Tax replied 5 months ago.

You need to keep a record of your mileage for the year and make a claim for the business usage proportion at the end of the year. It's simple. Look here.

Customer: replied 5 months ago.
Thanks for all the information you have provided for me. Could you please look at this scenario so that I can clarify a few points:

Income from Self Employment (2013-2014) £4000.00
Income from other employment (2013-2014) £14500.00
Purchase of car on FYA £15000.00 (80% business use would = £12000.00)
Offset against total income for year would leave £6500.00

Does this mean I would be due a tax refund for 2013-2014? ... And if so, what would happen in the next tax year.

If my income for 2014-2015 equates about £9000.00 (say, £4000 from self employment and £5000 from other employment) - is that effected in any way by the loss in 2013-2014 - or does it all start over as normal. (I assume you can only claim once for the tax loss, and it would only affect the next tax year if my total income had been less than the FYA...)
Expert:  Tony Tax replied 5 months ago.
I'm afraid that you are straying into a new area so I cannot answer your question here. You will need to post it as a new question.
Customer: replied 5 months ago.
Hi - I have just re-joined on the unlimited answers subscription - can we carry on with this thread, or do I have to post the question on a new one...
Expert:  Tony Tax replied 5 months ago.
This question has already been answered so I would have thought you would need to post a new question.

I suspect that the "unlimited answers" subscription means you can ask as many different questions as you like and not different questions on the same dialogue. You are free to ask as many questions on this dialogue about the original topic as you like.

I've never asked a question on the site you may check with just answer for clarification of what the unlimited subscription means.

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