Self Employed Car Tax Question?

[JagXJGuy]

Last year I purchased a Jag XJ8 through my partnership business, which I understand will be deducted under capital allowances.

As I don't do many miles with the business or personally (I also have a second car and my partner has her own car too) I decided it would be tax efficient to claim and tally all car bills, fuel, repairs etc up altogether rather than just keeping a mileage log and do a split between business and personal use. I've set this as 60/40.

The vehicle is written down on a yearly basis at 6% of its value year on year under special rates allowance on the partnership books.

Then fuel, tax, insurance, mot, repairs etc are then split between business use and then personal use. So if the yearly expenses were £6000.

Under a 60/40 split I would personally be taxed on £2400, and the remaining £3600 would be expenses under the business?

Is this correct?

Many thanks!

Edited by JagXJGuy on Wednesday 10th May 20:30

[Ham_and_Jam]

JagXJGuy said:

Last year I purchased a Jag XJ8 through my partnership business, which I understand will be deducted under capital allowances.

As I don't do many miles with the business or personally (I also have a second car and my partner has her own car too) I decided it would be tax efficient to claim and tally all car bills, fuel, repairs etc up altogether rather than just keeping a mileage log and do a split between business and personal use. I've set this as 60/40.

The vehicle is written down on a yearly basis at 6% of its value year on year under special rates allowance on the partnership books.

Then fuel, tax, insurance, mot, repairs etc are then split between business use and then personal use. So if the yearly expenses were £6000.

Under a 60/40 split I would personally be taxed on £2400, and the remaining £3600 would be expenses under the business?

Is this correct?

Many thanks!

Edited by JagXJGuy on Wednesday 10th May 20:30

How have you arrived at a 60/40 split? My accountant recommended to still keep a diary to prove the ratio.

[Eric Mc]

It's still the recommended way of keeping track of business versus private use. The legislation does not state precisely how this should be worked out but keeping track of the vehicle's mileage is the best way.

Many small businesses these days do not bother trying to process actual motoring costs through their business and instead just put through a mileage charge based on 45p for the first 10,000 business miles and 25p for mileage above 10,000.

For many this is far simpler although it still requires keeping some sort of mileage log.

[AndyAudi]

JagXJGuy said:

Then fuel, tax, insurance, mot, repairs etc are then split between business use and then personal use. So if the yearly expenses were £6000.

Under a 60/40 split I would personally be taxed on £2400, and the remaining £3600 would be expenses under the business?

Is this correct?

Our partnership has various commercial/non commercial vehicles & we have as part of the accounts a “private use schedule”

Basically motoring costs as split out per vehicle (proportionally in some cases or specifically where can be itemised (repairs/licensing etc).

Accountant asks annually
“Does the proportion split seems reasonable”
“Has percentage use remained the same”

Any element of private use is not taxed on any individual if they are a partner but removed from being an allowable deduction & classed as “drawings” - allocated to appropriate partner.

One think to consider as you mentioned fuel & not a lot of miles in your car. If it’s something new into the business & you are buying fuel through partnership & reclaiming VAT. Have you remembered about the fuel scale charge? https://www.gov.uk/fuel-scale-charge

If low mileage it may not be worth putting fuel through business as you basically pay for that “privilege”

[MustangGT]

Eric Mc said:

It's still the recommended way of keeping track of business versus private use. The legislation does not state precisely how this should be worked out but keeping track of the vehicle's mileage is the best way.

Many small businesses these days do not bother trying to process actual motoring costs through their business and instead just put through a mileage charge based on 45p for the first 10,000 business miles and 25p for mileage above 10,000.

For many this is far simpler although it still requires keeping some sort of mileage log.

Eric, Does the HMRC rate apply to a partnership though? I thought you needed the mileage log and split the total costs by the usage to apportion deductible costs to the partnership?

[Eric Mc]

MustangGT said:

Eric, Does the HMRC rate apply to a partnership though? I thought you needed the mileage log and split the total costs by the usage to apportion deductible costs to the partnership?

Yes - partnerships can use the mileage rate system if they want to.

[MustangGT]

Eric Mc said:

MustangGT said:

Eric, Does the HMRC rate apply to a partnership though? I thought you needed the mileage log and split the total costs by the usage to apportion deductible costs to the partnership?

Yes - partnerships can use the mileage rate system if they want to.

That's great info, thanks.

[Simpo Two]

Eric Mc said:

Many small businesses these days do not bother trying to process actual motoring costs through their business and instead just put through a mileage charge based on 45p for the first 10,000 business miles and 25p for mileage above 10,000.

I had a column in the book headed 'Car'. Any bill that was for the car, from petrol to road tax and insurance, went in it. Then we used a percentage of it. Couldn't be a easier.

[Eric Mc]

Depends on the nature of the book-keeping system. For a simple sole trader, what you did was probably good enough.

For a more sophisticated business which has double entry book-keeping and may have multiple methods of settling suppliers invoices (cash, bank, credit card, personal payments by owners' own resources etc) then the record keeping gets a bit more complicated.

Being a partnership already makes the situation a bit more complex because you have at least two (possibly more) individuals who co-own the business, possibly in different ratios (based on capital put in by the partners or their agreed profit sharing ratios). The partners also have a financial responsibility to the other partners as each partner is joint and severally liable for the debts of the partnership.

So, whatever methods are being used to record transactions, all of the partners will have to be instructed on the systems in use for record keeping. Failure to do so is a guarantee for tears.

[JagXJGuy]

Simpo Two said:

Eric Mc said:

Many small businesses these days do not bother trying to process actual motoring costs through their business and instead just put through a mileage charge based on 45p for the first 10,000 business miles and 25p for mileage above 10,000.

I had a column in the book headed 'Car'. Any bill that was for the car, from petrol to road tax and insurance, went in it. Then we used a percentage of it. Couldn't be a easier.

I've got a separate folder too for all car related expenses. When I say I do low mileage my commute to the shop is less than a mile each way, then business driving is roughly 5+ miles per day for supplies etc.

Due to doing say around 2000 miles per year in the car, when you work out insurance, tax, repairs, MOT and fuel cost for an old V8 doing mostly city driving, I think the actual cost method would be financially beneficial for me.

The 60/40 split is me being on the safe side.

I do have a 2 seater roadster for personal use and use of partners car too. For longer trips and holidays we usually take her car as there's more room and its more fuel efficient for long drives!

[JagXJGuy]

Eric Mc said:

Depends on the nature of the book-keeping system. For a simple sole trader, what you did was probably good enough.

For a more sophisticated business which has double entry book-keeping and may have multiple methods of settling suppliers invoices (cash, bank, credit card, personal payments by owners' own resources etc) then the record keeping gets a bit more complicated.

Being a partnership already makes the situation a bit more complex because you have at least two (possibly more) individuals who co-own the business, possibly in different ratios (based on capital put in by the partners or their agreed profit sharing ratios). The partners also have a financial responsibility to the other partners as each partner is joint and severally liable for the debts of the partnership.

So, whatever methods are being used to record transactions, all of the partners will have to be instructed on the systems in use for record keeping. Failure to do so is a guarantee for tears.

It's a small shop between two immediate family members, set up as a partnership. No staff members. Simple book keeping at the moment.

[JagXJGuy]

AndyAudi said:

JagXJGuy said:

Then fuel, tax, insurance, mot, repairs etc are then split between business use and then personal use. So if the yearly expenses were £6000.

Under a 60/40 split I would personally be taxed on £2400, and the remaining £3600 would be expenses under the business?

Is this correct?

Our partnership has various commercial/non commercial vehicles & we have as part of the accounts a “private use schedule”

Basically motoring costs as split out per vehicle (proportionally in some cases or specifically where can be itemised (repairs/licensing etc).

Accountant asks annually
“Does the proportion split seems reasonable”
“Has percentage use remained the same”

Any element of private use is not taxed on any individual if they are a partner but removed from being an allowable deduction & classed as “drawings” - allocated to appropriate partner.

One think to consider as you mentioned fuel & not a lot of miles in your car. If it’s something new into the business & you are buying fuel through partnership & reclaiming VAT. Have you remembered about the fuel scale charge? https://www.gov.uk/fuel-scale-charge

If low mileage it may not be worth putting fuel through business as you basically pay for that “privilege”

I was under the impression that the 40% personal use split would be added to my self assessment (this is just from googling it).

How do drawings work in relation to tax?

Thank you

[Eric Mc]

If you are processing the actual vehicle running costs (fuel, maintenance, insurance etc) through the business records and you have divided the the business/private ratio is 60/40, then the way I would do it is put 100% of the running costs through the business profit and loss account but then disallow 40% in the business tax computations.
That has always been the way taught to us accountants when learning about private use adjustments.

[Eric Mc]

Drawings are ignored when calculating tax for a partner.
Partners are taxed on their share of the tax adjusted business profits BEFORE drawings are deducted.

[AndyAudi]

Eric Mc said:

….put 100% of the running costs through the business profit and loss account but then disallow 40% in the business tax computations.

Yep exactly per below if it helps op


You can see the result of the private use adjustment creates a bigger taxable profit to be shared by the partners on their respective returns. (You don’t get taxed on it again separately)

You can also see because you have £6000/yr expenses on 2,000 miles you are better putting the costs through business than the mileage! (As you’d have to pay the bills privately & more tax)

(I think I got the scale charge right as you need to pay that if you are claiming the vat back on any fuel used for private use - is a fixed adjustment to every VAT return based on emissions/engine size)

Apologies if I confused things by mentioning drawings, they are the other side (balance sheet) of the (P&L) entry for the private use.
Basically because the partnership is physically paying garage bills & fuel for all the usage, your partnership current account would be reduced by 2,400 to reflect the value you took out of the business to pay your share of the bills.