For many self-employed people the most expensive asset used in their business is a motor vehicle.
With business use there are a couple of options when it comes to tax relief:
1) Claim a flat rate 45p/mile allowance on the first 10,000 business miles, and 25p/mile thereafter.
2) Claim the business use percentage of total mileage incurred in respect of all the costs.
The fixed mileage rate includes an amount for depreciation, as well as fuel/servicing/etc. and in many cases can work out to be more beneficial – depending on the efficiency and running costs of the vehicle.
One question that comes up is regarding car leases, with these you can have a brand new car for a monthly payment – however it’s important to remember a couple of points when considering this:
1) Deposits. At present there is no standard lease cost amount, as we have for APRs on loans for example, which means that it can be difficult to compare vehicles. However an easy way around this is just to take the deposit and divide it amongst the monthly payments to give you a figure that can be used for comparison.
Car A: £1,000 deposit and £150/month over 24 months = an equivalent monthly cost of £192.
Car B: £2,500 deposit and £99/month over 24 months = an equivalent monthly cost of £203.
By using this method an easy comparison can be made.
2) VAT. You may see leases quoted for business users, an important point to watch out for is that these prices usually exclude VAT – so the actual cost can be 20% more than you thought it would be.
If you are interested in obtaining calculations to show the benefits of one method over another, please do get in touch as there are several areas to consider.