I would advise any client against purchasing a company car, unless you are going to buy a hybrid the tax arrangements are particularly prohibitive.
Instead the best thing to do is to take advantage of HMRC’s ‘Mileage and Fuel Allowance‘.
Mileage and Fuel Allowance
This can be claimed if you use your personal car for business use, you must pay for the petrol used personally (ie with a personal credit card). It counts as a deductible expense for your business (reducing your taxable profits) plus it will be 45p per mile extracted from your business into your pocket, tax free. Unless you have a particularly thirsty car it is unlikely you will run up petrol costs of as much as 45p a mile, the excess over the cost of petrol is designed to reimburse you for wear and tear on your car.
Furthermore you can claim an additional 5p for each passenger.
Please note these amounts relate to the tax year 2011/12. In 2010/11 the rate was 40p.
The main thing to watch out for is if you travel more than 10,000 miles in a tax year. Once you have travelled more than 10,000 miles you should only pay yourself 25p per mile on the additional miles, you can still pay yourself 45p a mile on the first 10,000.
How to claim it
Provide your own car for business use, pay for petrol in the car personally (not on a business card!) and go on a legitimate business trip.
You must keep a record of your journey including the destination, the reason for travel, miles travelled and the number of passengers (if any). Plus make sure you hold on to a petrol receipt for your records. We have prepared a really simple spreadsheet you can use to track this, which you can download here.
Then charge your business the calculated expense (not the value of the petrol receipt) and take the same amount for yourself out of the company bank account to cover the cost of petrol.
Here’s a HMRC video on the topic of motor expense:
For more information and help with your tax return please call or email us, we’ll be very happy to help.