Are All Motor Costs Tax Deductible?
Dunfermline Accountants, OnTax, overstayed their welcome in a car park recently and got a fixed penalty. This highlighted to us the need to guide our clients further on what costs are and are not allowed as tax deductions. So at OnTax Dunfermline Accountants we sat down to write this short guide.
The first point worth noting is that motoring costs to and from your regular place of work are not tax deductible. We are often asked by contractors working through their own limited companies about this and in rather simplistic terms an employee going to the same place of work each day cannot claim any motoring costs against tax. Contractors who go to the same job long enough for HMRC to view it as a permanent place of work (in some cases as little as 1 month!) cannot claim anything either.
However, we would be quick to point out that HMRC distinguish between "temporary" and "permanent" workplaces and they have been known to take the view that you can have 5 permanent places of work at the same time! We have found that there appears to be little guidance over what HMRC class as "temporary" and what they class as "permanent" and it's really down to the individual tax inspectors opinion.
Allowable Motor Costs
Having established whether you are in a position to claim as tax deductions your motor expenses, which type can be claimed? We would advise that fuel, repairs, servicing, parking, tolls and suchlike are claimed in proportion to the amount used "wholly and exclusively" for business purposes. However, not all motor expenses may be tax deductible.
Parking fines for instance are a potential disaster zone. If you are on company business and incur a fine, the circumstances will greatly dictate whether it is tax deductible. In fact we have seen even accountants dispute this amongst themselves! The basic rule is "Have you broken the law"?
For instance; speeding, parking out of parking bays, not buying parking tickets, jumping red lights and suchlike are all classed as civil offences and the tax man will not let you pay for your crime at his expense! Crime does not pay and neither is it tax deductible! But, overstaying a parking time is not classed as such and, as long as you were on company business this would be tax deductible.
Getting The Paperwork Right
We are always shocked at how many clients do not keep their paperwork correctly. We regularly see cases of hundreds of pounds of tax being incurred simply because receipts were not kept. We advise you to keep a big seal-able plastic wallet in the car and collect the receipts there.
Next, make sure to reclaim vat (if applicable) but only if these receipts contain a vat reg number on them. Make sure all these myriad of little receipts are audit numbered and tie up with your book-keeping. If you consider that a motoring offence penalty is tax deductible, which is rare, make sure that you have a formal letter from the authorities detailing why the penalty was issued as HMRC may challenge you on this.
Sharing Is Caring!
If you found this page useful, please care and do a share!