Last week a client asked me to advise on a purchase of a company car for her business. So this week we will explore the facts surrounding the two methods of accounting for company vehicles.
There are two ways company vehicles can be charged to your business: the full cost method and the simplified expenses method. We will look at each in turn.
The full cost method is where you add the asset to your balance sheet, you capitalise it, this way you claim capital allowances where possible. This can be tricky, if it is a very green new car with low emissions it may qualify for 100% First Year Allowances (FYA) but if it doesn't cars do not qualify for the Annual Investment Allowance (AIA) of £200k per year and will have to be added to a separate pool and treated less favourably. As motorbikes, cars, vans and lorries are not cars they do qualify for the AIA and can be deducted from profits in full in the same way you would with FYA. Once on the books you can charge the full cost of running the vehicle through your company: services, insurance, fuel etc. but you will be almost certainly be charged a benefit in kind charge on the private use. If the business pays for your fuel there is a scale fuel charge as well. These charges were severely increased when the government got worried about green house gases and it is rarely worth an owner manager having a car in the company for tax reasons unless you do a lot of private mileage or it is an electric car. That is even before we get onto the complexities of the capital allowances of selling the car!
The simplified expenses method is more, well, simple. You do not capitalise the asset (add the vehicle to company ownership), you create a travel log to detail your business journeys and then for car journeys charge your business 45 pence per mile on the first 10,000 miles you drive and 25 pence per mile on any subsequent mileage. For motorcycle journeys the rate is 24 pence, and for bicycle journeys the rate is 20 pence per mile. These rates are set by HMRC and are intended to compensate the vehicle owner for all vehicle related costs, meaning you cannot claim any other vehicle related costs. The expense claim is tax-free. Incidentally, this is what I have done with my Piaggio Vespa Primavera Touring 125cc 🙂
Other points to note are that you cannot capitalise a vehicle you had been using for private use as a company vehicle, you cannot reclassify it. You will not be able to reclaim all the purchase VAT if the vehicle is not being used 100% for business.
Next week the blog is taking some time off for good behaviour, I'm taking my Vespa for a solo wild camp in the Mendips but I will resume blogging upon my return...