I just wanted some advice on petrol and car expenses. The business has sole proprietorship and the personal car is used for business purposes, namely driving to give quotations and driving to and from site.
At the moment I have just been keeping all petrol receipts and putting this as expenses. Is this correct? I have read about a 40p per mile rule, but my understanding is you can choose one or the other. I'm not sure if this is correct.
Furthermore can I claim for MOT, Insurance and general maintenance expenses ie servicing etc (we also have bill for £750 to fix the car!). All this has to date been paid from the personal not business account.
If the car is used for business and personal purposes, you cannot claim all the petrol expenses, MOT, insurance etc, only that which relates to business use. You will have to work out what proportion of use is business and just claim back that proportion of the fuel etc. This is the reason why most people choose the mileage option, as it is easier to work out. (Assuming they keep a log of their mileage that is!). It is 40p per mile for the first 10,000 miles and 25p thereafter.
No the car is not induced as an asset. However, it is mainly used for business purposes. We are a construction busines and spend a lot of money on petrol, due to the fact that most of the work is gained in London and we live a fair way from London. Therefore lots of petrol is spent on quotations and visiting site. I've just been keeping the petrol receipts and not a log of the mileage! However, that may may be the best way forward from now on.
1. Include the car in the accounts as an asset. Need to get a reasonable value when introduced if you didnt buy it for the business and already had it. Get capital allowances on the car based on the CO2 omission. Will need to adjust for a % of personal use. Will be able to include all running costs of the car as an expense eg petrol, repairs, MOT, insurance, road tax. But again need to make a % adjustment for for private use for tax purposes.
2. Just keep a log book of the business mileage and claim just for that based on 40p for the first 10k miles and 25p therefore each year.
Really is a case of crunching the numbers of both options to see what is more tax beneficial.
Remember any business use/private use split may need to be justified to HMRC should they ask.
Just a thought.....and I'm sorry if I'm being really dim here, but how do you reconcile your bank statements in this respect? I have a book-keeping software package but if the expenses you are entering (40 p mile) is a different amount to the actual receipts coming from your business account in fuel, how does this reconcile?
If you are claiming the 40p a mile rather than the actual motor costs in your accounts then any motor costs would be a personal cost. So say you spent £20 on petrol on your card which deducted from your bank account and the business mileage for that £20 was a 30 mile trip each way the entries to record would be
Dr Drawings/Directors Loan £20 Cr Bank £20
To record the £20 petrol cost
Dr Motor Expenses £24 Cr Capital Introduced/Directors Loan £24
To record the 60 business miles at 40p each
As you can see in this example claiming the 40p per mile gives you greater tax relief than claiming the fuel cost. Dont know how many miles you get for £20 these days but sure it is still more than 60 miles in these inflated petrol cost days.
I wouldnt make the 2nd adjustment for all business trips individually but would simply do as an annual adjustment at the end of the year. ie sum the total business miles over the year eg 12k miles then do the adjustment
10k at 40p per mile = £4k 2k at 25p per mile = £500
Total £4500
Year end journal
Dr Motor Exps £4500 Cr Capital Introduced/Directors Loan £4500
I do it slightly differently for my own mileage. I keep a log of the miles I've done at 40p per mile (etc), so that I can see how much the business owes me and then when it gets to about £25 I use the business card to buy £25s worth of petrol. Less journals, correct bank rec, and correct amount of mileage related cost shown in accounts!
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
I didn't want to open a new thread as there are already many threads on this as I was checking if anyone had asked a similar question, I decided this was the closest to my query.
My predicament is slightly different my clients run a shop and use their car to travel to and from the shop and to trade fairs and stockists their milage can vary depending on the distance to trade fairs etc.
At present the petrol is paid from the business account or in cash from the business and recorded in the accounts as an expense along with car insurance. Now I know they cannot claim from the business the portion of travel to and from the shop, so will need to adjust for this somehow. I have asked them to keep track of their milage but they have recorded all milage not individual business trips (should have explained myself better me thinks...).
I complete their books on a quarterly basis and will need Profit/Loss for the quarter, so will have to make adjustment at the end of the quarter. I do know how far it is from the house to the shop so I could calculate how many days the shop was open and multiply this by the miles to shop and back. Take this figure from the total milage and then I should have a figure for business miles. Should I then journal from the Fuel/Vehicles Costs account the portion/percentage that relates to personal travel, to drawings?
Do you think this would be a good method?
-- Edited by NicholasMDudley on Wednesday 7th of November 2012 06:26:14 PM
