A landlord running an incorporated business is likely to need to use their own car for the purposes of the business. Where this is the case, what can they claim by way of expenses?
Costs incurred wholly and exclusively for business purposes can be deducted when working out the profits of a property business. When it comes to cars, a deduction can be claimed for the cost of fuel and associated running costs. There are two options for working out the deductible amount:
- using the simplified expenses system; or
- by reference to actual costs.
Depending on the method used to work out the deductible amount, it may also be possible to claim capital allowances in respect of the cost of the car.
As the name suggests, the simplified expenses system is an easy way to work out the allowable deduction. The landlord only needs to keep a record of business mileage for the year and calculate the deduction by reference to the permitted mileage rates. However, it is not an option if capital allowances have been claimed for the car – the rates include an element to reflect depreciation.
The system can also be used where a van or motorcycle is used for the purposes of the property business.
The mileage rates used to calculate the deduction are as follows:
Rate per mile
|Cars and vans||First 10,000 business miles||45p|
|Subsequent business miles||25p|
The landlord can instead claim a deduction by reference to the actual costs. This will necessitate more work but may give a higher deduction.
Where the car is used for both the business and privately, the costs must be apportioned – a deduction is only given to the extent that they relate to the business.
When working out a deduction based on running costs, the following should be taken into account:
- breakdown cover; and
- road tax.
If the cash basis is used to prepare the accounts, the deduction is given in the period when the expenditure is incurred; if the accruals basis is used, the expenditure must be matched to the period to which it relates.
Capital allowances can only be claimed if simplified expenses have not been used to work out the deductible amount. Where the deduction is based on actual costs, writing down allowances can be claimed for the cost of the car. As with expenses, if the car is used both for business and private mileage, an apportionment is necessary.
Cars do not qualify for the annual investment allowance or a deduction under the cash basis capital expenditure rules.
Partner note: ITTOIA 2005, ss. 34, 94D.