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Advice: I’m a sole trader, so what’s the best way for me to run my car on business?

sole trader
Advice for sole trader on business car motoring expenses

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14 March 2017

IF YOU operate your business as a sole trader, then all your sole trader business car motoring expenses can be met by the business, provided all private motoring elements are deducted.

That’s because the tax position of the sole trader is very different to the limited company.

If you are a sole trader, your business only exists as a trading medium.

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It does not ‘exist’ as a separate entity – unlike a limited company.

Therefore, a sole trader can keep a car (or van) in their own name on the registration V5 document.

All the business car running costs can be paid for by the business. Then the trader – or more likely their accountant! – deducts a fair proportion as private usage. The remainder is left as a business expense.

Similarly, the capital allowances on the cost of the sole trader business car can be claimed by the business – minus the ‘private’ proportion again.

Or, if the vehicle is funded by hire purchase, or contract hire payments, these can be claimed, too (minus the private element).

However, HMRC does expect the trader to keep a proper log of business mileage. If this isn’t done it might weaken a trader’s case if they were to be investigated.

It is important to demonstrate that the business/private mileage split being claimed – whether 80/20, 60/40 or 50/50 – is genuine.

There is also no company car tax to worry about.

Key points for sole trader business car motoring expenses

  • All running costs can be met by the business – less private proportion
  • Funding payments can also be claimed – less private proportion
  • VAT can be re-claimed on fuel expenditure – less private proportion calculated using the HMRC VAT Road Fuel Scale Charge
  • 100% VAT reclaimable on servicing and repair items
  • No company car tax liability

Further information

Tim is an accountant. He can be found at www.thetaxpartnership.com.

 

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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