Are you planning to get a vehicle and use it for your business? If so, if you might be wondering, are car finance repayments tax-deductible for your business? You may be wondering if it’s possible for you to claim the cost of the car as a business expense. Particularly, if you borrowed money when buying a car, are the car finance payments tax deductible? That’s what we’ll figure out in this article. The answer will vary depending on several factors.
Factors to Consider for Tax Deductions
One of the first questions you have to answer is whether you have a business or are self-employed. If you do not have a business, you won’t be able to get any tax deductions for your car finance payments.
But before we go any further, it's important to understand that Carmoola do not provide tax, accounting or legal advice. This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for, tax, accounting or legal advice. You should consult your own tax, accounting or legal advisors before engaging in any transaction.
So, to claim tax relief, you should be self-employed. The next factor to consider is the purpose of your car purchase. If you’re going to buy a vehicle so you can use it for your business, it’s possible that you can claim the cost of the vehicle as an allowable expense. However, if the car is only for personal use, tax deductions will not be permitted.
Here’s an example, if you use the car so you can meet with your clients, then you’re using it for purposes relating to your business. But if you run your business at home and then only use the vehicle for trips that are not related to your business, you can’t claim tax deductions for your car expenses. It goes the same if you’re only using the car so you can get to work.
What are the HMRC Rules?
If we consult Her Majesty’s Revenue and Customs (HMRC), we’ll see that there, everything is laid out when it comes to how vehicles that are used for business purposes are treated for taxes. Here are the key HMRC rules.
It’s possible to claim the car’s purchase cost as a capital allowance. What this means is that you may subtract some of the vehicle’s value from your business’ profits before you pay your taxes. Your accountant will be able to advise on how to do this. Consequently, your tax bill will become smaller. The vehicle is categorised as a car according to the HMRC if it is not designed to transport goods. It must also be suitable for private use.
What are the Types of Allowance?
There are two factors to consider so that the rate that you can claim can be determined. One is the date of purchase, and the other is the CO2 emissions. With these two factors, you will know what type of allowance will apply - first year, special rate, or main rate allowance.
Cars for Employees
What if you are using your vehicle for purposes that aren’t always business-related? Would it be tax-deductible? It would have to depend on how much of the car’s use is for your business.
For example, if the vehicles are for your employees, then you can claim capital allowances for the entire cost of the car. However, if your employees are also using it for personal purposes, then the vehicles should also be declared as a benefit.
Using the Car for Personal Purposes
If you buy a car so you can use it purely for personal purposes, again, you won’t get any tax relief. This is true no matter the way you finance the vehicle. Also, it won’t be possible to claim for insurance, fuel, or road tax. But if you use it as a proportion for personal use and a proportion for business use, you can claim the relevant proportion against your tax.
If you’re an owner of a business, you may opt to claim for mileage, as well as the costs relating to your vehicle. You may claim reimbursement of 45p for every mile up to 10,000 miles. Beyond this, you may claim 25p for every mile. Do check your mileage annually to determine if you are still within the 10,000 mileage limit or if you’ve already gone over it. But again just for trips which are for business purposes.
Using the Car for Your Company
In situations where you bought a car for your company, your claim would have to depend on how the vehicle was financed. For example, if you took out a loan or car finance agreement so you can buy the car, it would only be the interest that you can claim. You may also be able to claim capital allowance, but this will depend on the car’s CO2 levels.
Leasing a vehicle is another scenario, and you may claim it as a business expense. But be ready because this will only apply to cars that have CO2 levels that are above 100g/km. Know your car’s CO2 level first so you can calculate the percentage of the car’s value when you purchased it, rather than the cost of what you paid to buy it.
As you can see, there are plenty of things to determine to make the car tax-deductible. You need to make sure that you will use it for business-related purposes. Also, see to it that you consult the rules of HMRC because everything you need to know about getting tax relief for your car is laid out there. If you want to know more about the answers to the question, “is financing a car tax-deductible?” the HMRC rules will be able to provide more specific answers. Do check for yourself as tax rules can change from time to time!
For other car financing tips, feel free to check out the Carmoola Blog! We post new articles daily. If you’re looking for the best car finance deals, you may also check out what Carmoola offers car buyers and see which deals fit your needs best. And for questions or comments, don’t hesitate to reach out! We’d love to hear from you! 😀