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Hi,
I have got a slight confusion regarding claiming expenses on cars.
We can deduct Capital Allowances in relation to cars. But if we don’t opt to use the Capital Allowances, then the actual mileage costs are deductible against trading profits if it’s purely for the purposes of trade?
It’s there on page 45 (k), but I’m confusing accruals and cash basis.
Thank you.
Unincorporated businesses have two options for the amount of the expense to claim as a trading deduction:
1. Claim the business use proportion of capital allowances and running costs.
2. Claim the fixed rate mileage allowance.
So if a car costing £10,000 with CO2 emissions of 45g/km, does 9,000 miles per year, 6,000 of which are for business, and incurs running costs of £3,000, under option 1 the claim would be:
CAs: £10,000 x 18% x 6,000/9,000 =£1,200 and
Running costs (fuel, insurance, servicing etc): £3,000 x 6,000/9,000 = £2,000Which gives a total deductible expense of £(1,200 + 2,000) = £3,200.
Under option 2 the CAs and running costs are ignored and the claim would simply be 6,000 x 45p= £2,700.
These options apply whether the trader is using the cash or the accruals basis.
This has cleared all my doubts regarding capital Allowances.
I was having a problem with fixed rate mileage allowance thinking why this figure is not deducted as part of capital Allowances.
But now I have understood that we don’t have to do capital Allowances when we calculate fixed rate mileage allowances.
I was actually doing the reverse. Deducting from trading profit directly of what actually should have been for Capital Allowances (option 1). Instead of putting this figure specifically under Capital Allowances.
So very grateful to you.
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