What car expenses can I claim through my business for tax purposes?
There are two options available to you; you can either claim on a mileage basis or a costs basis.
Mileage
The simplest way of calculating a business car expense is to record your business mileage during the year and claim 45p for the first 10,000 miles and 25p per mile thereafter.
Example – say you had driven 12,000 business miles in the year.
You would claim (45p x 10,000) + (25p x 2,000) = £4,500 + £500 = £5,000.
Costs
You would total all of the costs relating to your car (insurance, road fund license, fuel, service, MOT, repairs, any finance interest, etc.) and claim a proportion of the costs based on the proportion in which you used the car personally and for business.
You would also claim a proportion of the car's purchase price every year which is dependent on the CO2 emissions of the car.
Example – you have incurred the following costs during the year:-
Fuel £3,400
RFL £100
Service £200
MOT £50
Repairs £250
Total £4,000
Say 60% of your car mileage related to business - you’d claim £4,000 x 60% = £2,400 as a business cost.
Also, say you’d purchased the car for £10,000 – you’d claim a percentage of the cost as capital allowances (usually 18%) and then proportion this depending on business mileage.
You’d therefore claim £10,000 (cost of the car) x 18% (capital allowances) x 60% (business use) = £1,080 against your profits and £10,000 - £1,800 = £8,200 would be carried forward to claim next year.
The total claim would therefore be £2,400 (costs) + £1,080 (capital allowances) = £3,480.
Other things to consider
I would suggest that you shouldn't use the costs method if your business is Limited Company. You will have to submit a P11D to HMRC detailing benefits in kind (BIK) every year. The BIK is ridiculously high these days (which wasn't the case in the 80's). Unless you change your business car every 1 or 2 years then it simply is not worth it.
You cannot change methods once you have started using one for a specific car.