I have just taken on a client, a sole trader. He has a van and a car. The van is used 100% for business purposes and the car is split between business and private use. The client does not use a mileage log but he estimates that the usage is around 75% business and 25% private for the car. What is the best and most tax efficient way to process the tax due?
I would be asking why he uses his Van and Car?? The only reason I say this is a had a dodgy client once (past tense) and he had a van which was for business and also had a car which was always on his drive yet he claimed to use it 50% for work!!!! Well it never got put through the business as he was bending the truth somewhat.
Maybe your client is legit but I would certainly ask for a break down of mileage just incase he ever gets inspected by HMRC, also it covers your back.
Sorry not very helpful I'm sure Shaun will be on here soon to put his take on it.
I appreciate your reply. I did pose the question what the car was used for and his reply was that he used it predominantly for sales calls, which seemed reasonable. I will also ask him to commit this statement to paper specifically to cover myself. However, my problem is do I adjust his tax allowance to incorporate a company car, fuel etc. or is there a more efficient way that I can do this ie. apply a 25% deduction on specifics for fuel, servicing, RFT etc.?
You say your client is a sole trader, so cannot have a company car. There are 2 ways to claim use of a vehicle for a sole trader.
1. as a percentage of the running costs 2. using HMRC's approved mileage rate
That's your only choices. I would suggest you do the calculation for both and work out what is best for the client. I would also insist that the client keeps accurate mileage records.
Is it a company car? Does the car belong to the business or to the owner in which case you will probably find that the 45p/25p mileage option proves better than suffering the tax liability of a private use for a company car or percentage basis for their own car.
Assuming that it's not a company car if they do not wish to (or cannot, see later) use the mileage option then they do of course have the option to put through costs on a percentage use basis of their own car and indeed if they are over the VAT registration threshold that would be their only option.
If they can use the mileage option then the owner cannot claim for anything else in relation to the car except parking.
No matter which option chosen the owner must keep a detailed mileage log or its all private mileage. Definitely worth emphasising that to the client including that they will need to rebuild their mileage log for all journeys to date if it has not been properly maintained.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Oops, good point Kris, missed the Sole Trader line. Doh. I always seem to just assume that busineses are incorporated (no doubt because all but one of mine are).
The bit in my replies still applicable though about when the client cannot use the mileage rates option.
talk later,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The sheer amounts of two vehicles in a one-man-band will flag up the trade for at least an aspect Enquiry on motoring. Therefore, the mileage records for both vehicles must be meticulous.
I'd always err on getting the client to concede, however small, a private use amount for the van - it's much harder to argue that a van owner never did a favour for neighbour - transport furniture or go to the tip etc ....... "I use the family car for business but I never, ever use the van privately".
High total consumption is a hint there could be somebody else also burning fuel and that's another can of worms.
