Self employment and cars

[audi321]

Hi all, I've been an employee for all of my working life, but I've also just started self employed work too.

I'm about to buy a electric car (zero CO2), and I will use it for my self employed work too. For argument sake lets say 50/50%.

If I buy it on a PCP, with £10k down and £200/mth over 4 years (£10k balloon at the end) am I right in thinking that I can claim 50% of the cost of this against my self employed income? So in year one (assuming I started the PCP on the 7th April) I could offset £6,200, year 2 £1,200 etc etc?

If this is the case, and I only make a profit in year one of £1,000, does this reduce my PAYE liability by £5,200 also?

Is that how it works or am I way off?

I don't like asking for 'free' advice on here, but I've given plenty regarding IT in the past lol.

[Simpo Two]

I worked on the principle of 'private car used for business', and a percentage of all motoring costs went through the books. So in the case above I'd have used the figure of 50%. I don't think it will reduce your PAYE at all, because that's from your employment which is nothing to do with your car. I think!

[audi321]

Thanks, I had it in my head somewhere that a 'loss' from self employment would reduce liability from employment (providing it was a proper trading business - not an investment (BTL) type business). Maybe not then.

[Simpo Two]

audi321 said:

Thanks, I had it in my head somewhere that a 'loss' from self employment would reduce liability from employment (providing it was a proper trading business - not an investment (BTL) type business). Maybe not then.

You'd need to ask an accountant - EricMc maybe?

[Eric Mc]

A loss generated from a trading activity (i.e. self employment) can indeed be offset against income from other sources IN THE SAME TAX YEAR.
A trading loss can be carried forward against future trading profits generated by the SAME TRADE.

HOWEVER, the loss has to be genuine and calculated using correct accounting and tax rules.

If the only reason a loss has been generated is because you are making a massive claim for use of a car in your self employed business, you need to be absolutely sure that the way you are allocating the cost of that car against your business income is 100% correct.

There are different rules for making such claims depending on the type of vehicle and the manner in which the vehicle has been financed. HMRC also assumes that a personal vehicle being used in the business will not be used 100% of the time for the business. In other words, they would expect the costs claimed to be adjusted downwards to take into account non-business usage. It's called "The Private Use Adjustment".

There is also the issue of Capital Allowances claims and the different rules that apply depending on the nature of the vehicle. Private Usage also needs to be taken into account in any Capital Allowance claim.

[audi321]

Thank you Eric. The part about offsetting against PAYE income was more of a sub question. The main question was about my assumptions on how it’s worked out.

So assuming 50/50% usage (personal vs business) and assuming a zero CO2 car. Are my assumptions correct with regards to a PCP car agreement and offsetting the costs?

Edited by audi321 on Monday 4th October 17:29

[Eric Mc]

Sorry, not going to do the maths for you. I would need a lot more information anyway like sight of the finance agreement to know whether it is classified as a lease or an HP.

If you are going to operate a self employed business, you will need to sign up for Self Assessment and you should get yourself an accountant too.