A question sent to us by email:
I was wondering if you could give me some advice? I bought a car on PCP last December and was wondering if it would be best to claim it as a capital expense or as mileage? I’ve been claiming ppm so far but have just read on your site that I can’t claim for miles to a regular venue – but this is my main milage claim.
And our reply:
There are two separate questions really. First, eligibility to claim travel, and secondly maximising your deduction.
In terms of the first issue, eligibility to deduct expenses, the issue is around regular “commuting” and places of business.
If someone has an entirely peripatetic working life and their business is run from home, then there are no restrictions on deducting business journeys.
By contrast if a self employed person has one or more regular places of work other than home then HMRC deem the travel is “predictable” and it becomes home to work travel and hence not eligible for deduction.
There has been recent case law in this, viz Samadian case:
https://www.taxation.co.uk/Articles/2014/02/05/320041/wholly-inarticulate
HMRC run this position unexpectedly and won, and it’s thrown the issue of travel for the Self Employed up in the air, changing what the understanding of the tax rules for travel had been. Many people regard it as a bad ruling, but for now at least, its law.
Most people’s circumstances will be a blend of the extremes above, and it’s an element of judgement as to the mileage claimable. Some may distinguish their circumstances from Samadain and then claim everything, others be more cautious – both strategies have advantages and disadvantages.
Anyway, your judgement here will determine how many car miles you can claim.
The second part of the issue is the best claim to make. There are two choices.
First, mileage basis – which involves the claimable miles from above multiplied by HMRCs allowable rate of 45p / mile.
Secondly, apportioned actual expenses. A PCP is to all intents and purposes a Hire Purchase agreement, HP. The tax system regards this as an asset purchase and linked loan, thus the tax treatment is to claim a proportion of the total costs, comprising:
– Capital Allowances on the cost of the vehicle – these are an annual percentage against tax, the percentage varying according to emissions. Think of Capital Allowances as tax allowable depreciation
– the finance costs implicit in the PCP agreement
– running costs like fuel, insurance, repairs and road fund licence
The resultant total is then apportioned claimable business miles to total miles.
The mileage rate calculation is often easier by far, and some people prefer that for simplicity alone.
Do feel free to follow up with anymore questions or run some figures by me.
