Expense - business mileage - The Book-keepers Forum (UK)

Lyndsey · Senior Member

Expense - business mileage

Shamus · Forum Moderator & Expert

Hi Lyndsey,

Sounds fine. Theres £90 to help towards the petrol bill

kind regards,

Shaun.

newleaf · Veteran Member

Isn't there something about if you claim per mile rate, i.e 45p then you are not allowed to claim any other motor expenses in which case you would not be able to claim the trade motor insurance, in other words you claim the actual expenses incurred or a rate per mile but not both.

MarkS · Expert

Basically you have 2 choices

1. Claim all the motor costs but then disallow an appropriate % for private use.

2. Claim 45p per mile for first 10k business miles and 25p per mile thereafter.

You cant claim a hybrid of the two as the 45p covers the run cost of the vehicle not just the fuel ie covers wear and tear, insurance, MOT, road tax, repairs etc. So you couldnt claim the insurance if claiming 45p per mile. However in the example above the insurance covers vehicles other than their personal vehicle. So should be ok to claim that.

If turnover greater than VAT threshold you must use option one.

Once you pick one option then you need to stick with it until you change your car. You cant chop and change between them depending which is better based on the figures in a particular year.

Regards

Mark

Shamus · Forum Moderator & Expert

that wasn't the way that I was reading the situation.

the business delivers cars, the business insurance is for those cars which are not running a company vehicle. In many ways that can be thought of as a neccessary insurance of the business rather than of a vehicle of the business (so the insurance would be a general business insurance expense rather than motor expenes).

The business does not pay any expenses (including insurance) towards the private car.

You use the private car for work purposes (picking him up and bringing him back to base).

Therefore the 45p per mile compensation for use of your own car would be an allowable expense of the business.

I you are saying that the business pays any expenses towards the private car then you are correct and the mileage acannot be claimed.

Also, is the business limited or sole trader?

If Sole trader and the turnover is more than the VAT registration threshold then starting to claim mileage is not an option (one of those little idiosyncracies hidden in the tax system).

If I've misunderstood any of the facts please feel free to correct my understanding.

kind regards,

Shaun.

Shamus · Forum Moderator & Expert

Hi Mark,

you beat me by a minute.

My answer is based, perhaps on a misconception about whether any vehicle is actually being run through the business which from the original post I'm not reading that it is.

That trade insurance, provided that such is not used to cover the private vehicle does not seem to me as though such should be treated as motor expenses but rather as a general insurance making the mileage on the private vehicle an allowable expense.

What are your thoughts taking into account my reading on this,

kind regards,

Shaun.

Lyndsey · Senior Member

This was also where I was getting stuck on (hence us not claiming previously). Business is Sole Trader and not VAT registered.

The motor trade insurance purpose is for my partner to be able to drive other peoples vehicles for the purpose of the business i.e. moving around workshop/delivering back to customers plus having vehicles in the premises over night i.e. against theft or damage/fire. However, the policy also allows cover for up to 10 private vehicles, therefore our car is also covered under this policy.

So if I had read the above correctly I need to calc actual petrol costs/mot/road tax in proportion to business use, that should be pretty easy as I can work out annual mileage & proportion used for business & estimate petrol cost using MPG and price per litre?

Thanks everyone
Lyndsey

Shamus · Forum Moderator & Expert

Sorry Lyndey,

the business insurance covering the private vehicle shoots the mileage option down in flames.

Marks post hits the nail on the head.

kind regards,

Shaun.

Accountingnewby · Veteran Member

Hello Mark, regarding your comment. A friend, who is a sole trader, wrote his car off midway through the year. He had been claiming depreciation, petrol and maintenance. If I understand you correctly, with his new, (second hand) car, he can claim the 45ppm even though it is in the same year as his old car?

Would he still be able to claim a pro rata depreciation for the months that he had his old car?

Regards,

Mike

Shamus · Forum Moderator & Expert

If you don't mind someone other than Mark answering the question,

yes they can.

On change of vehicle which is the case that you have here you get to reset the previous method. (see BIM47701).

Shaun.

Accountingnewby · Veteran Member

Hello Shaun, I don't mind at all. I only mentioned Mark's name because I was replying to his reply to the original post! (I think).

Was your answer for both parts of the question? that is change calculations and pro rata?

Thanks, Mike

Shamus · Forum Moderator & Expert

Hi Mike,

yes. If you couldn't then nobody would ever be able to change between the methods.

As I say though you need to read that statement in conjunction with BIM47701 which details how the change is restricted only to change of vehicle which prevents people from chopping and changing methods when more beneficial to them.

basically the BIM stops people from treating the car as run through the business when it breaks down or needs a major servce and using mileage when everything is fine.

Hope that clarifies matters Mike,

kind regards,

Shaun.

Accountingnewby · Veteran Member

Thanks Shaun,

Reading some of the books they seem to state that when calculating the depreciation the list price is used. Does this also apply if the car is bought seconf hand? E.G if bought new the original list price was £30000 this would be used in the calculation, whereas if the same car was bought second hand for £20000, would this be used?

(taking into account g/km...)

Regards,

Mike

MarkS · Expert

Hi Mike

You seem to be confusing the accounting term depreciation with the tax term benefit in kind.

Depreciation is an accounting adjustment. It is based on the cost price of the asset, the length of likely ownership and the residual value. For instance if you buy a car for £20k and expect it to last 5 years and have no value at the end then you need to write off the £20k over 5 years. Easiest way is to charge £4k to the P&L account each year.

If you have a ltd company, not a sole trader business, then the company can own the car and you can claim all the running costs eg fuel, repairs, road tax, MOT, insurance, etc. However given it is a company asset if an employee uses it personally they are taxed on two matters, the car benefit and the fuel benefit (if the company pays for all the fuel). The benefit is based on the list price of the car when new and the CO2 emission.

Regards

Mark

Accountingnewby · Veteran Member

Thanks Mark, You are absolutely right. Thanks for putting me straight. I'm not sure why, but I might mis-read a post and end up confusing myself!

Regards,

Mike

Accountingnewby · Veteran Member

Hello Mark,

Would you please explain the difference between depreciation and writing down allowance. I am of the impression that they are the same, which is why I was calculating depreciation as a % of the car price. 18% if < 160g/km 8% if above.

Regards,

Mike

Shamus · Forum Moderator & Expert

Depreciation is an accounting concept.

Capital allowances are a tax concept.

Depreciation is the consumtion of a resource on a sysrtematic basis over its useful economic life by reference to the rate at which the business consumes the resource.

Capital allowances implement the prevelent tax regulations which will give a different figure to depreciation.

For example, AIA may give full first year allowances for a piece of machinery but through the accounts the machine may be written off on a systematic basis over (say) 4 years.

The difference in reality is really one of timing with accellerated capital alowances improving cashflow.

This is an over smplification as there are complex rules around this area but I think that the general principle should be clearer.

HTH,

kind regards,

Shaun.

Accountingnewby · Veteran Member

Hello Shaun,

I have never really thought of myself as being dense, but I am beginning to wonder.

If I understand what you have written and taking Mark's example of a car, say 200 g/km, that cost £20K which is depreciated at £4k per year for 5 years, in the accounts, the amount that may be claimable is based on the g/km? Or if the car was below 100 g/km the complete value could be claimed in the first year?

I hope this makes sense and thanks for your patience.

Regards,

Mike

Shamus · Forum Moderator & Expert

Your not dense although I think all of us have moment when we feel that way.

In the accounts the depreciation is based purely on value of the car taken over it's estimated useful economic life. No reference is made to the anything other than the price of the car.

The Capital allowances in the tax computation are based on the g/km.

g/km have no bearing on the financial statements beyond the effect upon taxes paid.

HTH,

Shaun.

Shamus · Forum Moderator & Expert

ok, lets do an example.

car purchased £20k.
g/km 173
expected residual £6000

In the accounts the depreciation would be £20k-£6k / 4 (assuming 4 years and straight line depreciation) so a depreciation rate of £3500 per year.

In the tax calculation do not assume any residual but take the cost £20k
as the g/km is > 160 then the rate for the current year is 8% (last year it would have been 10%) so you have a WDA of 1600.

In the accounts, after the first year there is a carrying value for the asset of £16,500.

In the tax calculations the Total Written Down Value Carried forwards (TWDV c/fwd) is £18,400

The differences are not real. They are only timing differences.

For tax calcualtions residuals are taken care of with residual charges or allowances on the back of an actual disposal rather than in the depreciation calcualtion where such is estimated and possibly later adjusted.

Hope that helps,

kind regards,

Shaun.

Lyndsey · Senior Member

It took me a while to get this too!

I just think -
1 - depreciation is a figure for the business, only really applicable in the accounts
2 - WDA/AIA/FYA is figure for tax man

When doing tax return, depreciation is not an allowable expense, so add this back onto P&L figure

Then you have a separate place to put in the Capital Allowances - where you calc the WDA using the g/km calc as per Shauns post above.

So the value of the vehicle in the balance sheet will be different from the value WDV c/f, which needs to be kept for future tax returns (I normally keep a spreadsheet & put it on notes to the accounts).

If you are picking up a tax return from another accountant, you will need the WDV c/f figure for existing assets, you cant just use figures from BS.

I hope that makes sense (I still pretty new to this too)

Lyndsey

Accountingnewby · Veteran Member

Hello Lyndsey and Shaun,

Excuse me for replying to you both at once. Many thanks for your replies. Somewhere along the line I had totally missed the fact that the accounts values were separate from the tax return values. Silly me! I feel I have made a step in the right direction.

Thanks to you both again,

Mike

Lyndsey · Senior Member

I thought that might have been the case :D

I'm not sure what you studied, but the Open Tuition ACCA F6 course notes/online lectures really helped me with this. Its free, all you need to do is register http://opentuition.com/acca/f6/

Accountingnewby · Veteran Member

Hello Lyndsey,

I'll have a look. I have AAT levels 2 & 3 and am hoping to start level 4 in the near future. I also have a copy of the ACCA paper P6 as recommended by Shaun but have not started it yet. I'm reading the Melville taxation, the FT personal tax and the Osborne personal taxation. Mainly just to lookup certain subjects. I'll follow up on the ACCA f6.

Regards,

Mike

Shamus · Forum Moderator & Expert

Hi Mike,

excellent call there from Lyndsey on Open Tuition

with Tax F6 and P6 require very similar levels of base knowledge except in P6 there is just more of it.

Open tuition is to my mind the best free resource out there available to us.

Persoanlly I'm not a big fan of the open tuition lecturer for F6 whose style is very dry unlike Mike little who does many of the other lectures who intersperses sometimes quite dry subjects with personal anacdotes that bring the lecttures to life.

If ever you need them I cannot recomend highly enough the lectures for P2 (advanced Corporate reporting), P5 (Performance management) and P7 (advanced audit).

Unfortunately, whilst there are resources available for P6 there are no Open tuition lectures for that one. Then again, there doesn't need to be as that one is really F6 with bells on.

About now you must be looking at your study materials that are forever growing and thinking "what the hell have I done" lol.

kindest regards,

Shaun

Accountingnewby · Veteran Member

Hello Shaun,

"About now you must be looking at your study materials that are forever growing and thinking "what the hell have I done" lol."

Many a true word!

Accountingnewby · Veteran Member

Hello Lyndsey,

As Shaun wrote, an excellent call. I have just watched the first video on taxable pay calculation and one of the points mentioned is that depreciation is calculated differently in the business reports than is required by the tax office.

Many thanks

Mike

Shamus · Forum Moderator & Expert

Hi Mike,

Well, I've certainly not said that accountings dull. Its just a perception that we put out there to keep the oiks out (lol).

fear not about Open Tuition. Its a favorite of ACCA students and there are lots of them. (432,000 students was the last figure that I saw).

What I've been pushing on this site as picked up very successfully by Neil is that there is a great deal of crossover between ACCA and AAT studies and there is no reason that you cannot study ACCA to get a good pass at AAT.

kind regards,

Shaun.

-- Edited by Shamus on Monday 15th of April 2013 07:52:15 PM

Accountingnewby · Veteran Member

Hello Shaun,

Thanks again. So just to check that I have it correctly, in your example, after deducting expenses the net profit in the P&L, say, was £10000. So on the tax return I add back into the profit the £3500 and show in the relevant box the write down allowance of £1600.

Just one question, are there any other items which are shown on the P&L as one value yet calculated diffrently on the tax return?

Regards,

Mike

Shamus · Forum Moderator & Expert

Hi Mike,

The rules for what is allowable and what is not in a tax computation are complex and occassionally go down the route of sometimes!

At a simplistic level Depreciation, Amortisation and Provisions are accounting, not tax concepts so would not be included in the tax calculation but as I say, it's not always black and white.

Your best starting point is HMRC's comparison between accounting profits and taxable profits :

(see here : http://www.hmrc.gov.uk/manuals/bimmanual/Index.htm)

read espechially the sections under BIM31000

(see here : http://www.hmrc.gov.uk/manuals/bimmanual/BIM31000.htm)

I guarantee it will quickly occur to you that employing a program such as taxcalc to help get the returns right seems like a very good investment.

kind regards,

Shaun.

p.s. personally I never add back but have seperate calculations. Whilst that is just symantics remember that in the following year you have the depreciated amount going into the financial accounts and the allowance adjusted figure going into the tax calculation so thinking of it as adding amounts back to the financial statements would actually cause you more grief than thinking of them as seperate calcualtions.

Accountingnewby · Veteran Member

Who said that accounting was dull!

I think that any publicity that can be given to opentuition.com would be a good thing.

Regards,

Mike

Lyndsey · Senior Member

Hi Shaun

On a slightly different matter... I see that you mention TaxCalc, I don't know whether you saw my other post the other day but I was seeing whether Tax return software is a worthy investment & which one people like. Tax Calc has pretty much been the only one people have spoken of. Is this something like Sage dominance of the bookkeeping software, or is it actually the best?!

Lyndsey

Lyndsey · Senior Member

Accountingnewby wrote:
I think that any publicity that can be given to opentuition.com would be a good thing.

I 100% agree, its a brilliant resouce for people even if they are not actually studying for ACCA etc

Shamus · Forum Moderator & Expert

Hi Lyndsey,

I asked that one some time back. There are actually several options but taxcalc comes accross as the most helpful by helping you with the returns rather than being more a bit of software to organise what you already know.

I have to admit that I don't actually use it at the moment. I still do tax calculations long hand. I use HMRC for self assessments and the VT Corporation Tax facility for companies (combined with an Excel spreadsheet for each company).

It seems messed up thinking but my approach is that I do not want to adopt shortcuts until I can do the job manually almost without thinking.

I know that people like Mark (MarkS) can do that so using taxcalc to lighten is workload makes perfect sense but I still have to think things through and whilst my approach may be more prone to being open to mistakes it is also honing my skills.

Eventually though, probably next year I too will adopt taxcalc.

Let me just have a search for that thread on tax software...

Right, here you go...

http://www.book-keepers.org.uk/t48316805/which-tax-software/?page=1

Unless you are actually studying accountancy at the higher levels I would not advise my approach to anyone else. Software is your freind. I'm just one of those fruit loops that always needs to know how and why software is coming up with the answers that it does.

hth,

kind regards,

Shaun.

Shamus · Forum Moderator & Expert

just reread you post and laughed out loud at the second reading...

is it like Sage or is it actually the best....

lovin it.

I think with the case of taxcalc it actually is the best.

MarkS · Expert

Lyndsey wrote:
Hi Shaun

On a slightly different matter... I see that you mention TaxCalc, I don't know whether you saw my other post the other day but I was seeing whether Tax return software is a worthy investment & which one people like. Tax Calc has pretty much been the only one people have spoken of. Is this something like Sage dominance of the bookkeeping software, or is it actually the best?!

Lyndsey

HI Lyndsey

There are various tax software packages; taxcalc, SAGE, IRIS, BTC and expect many more.

Taxcalc and BTC tend to be used by sole practitioners where SAGE and IRIS tend to be used by larger organisations.

Personally have experience of IRIS and Taxcalc.

Used IRIS for 15 years while working in practice. It an excellent package which fully integrates the accounts and tax package however it is very expensive.

I have used VT for accounts and Taxcalc for tax returns (personal and corporate) for the last year or so. Given that it isnt integrated you need to know where to input the figures in Taxcalc system but the simplestep facility that takes you through all the relevant screens is in my opinion better laid out that IRIS with the only downside that you need to input the figures. However understand if you have both taxcalc accounts and tax that sole trader/partnership information can be directly linked and that the link between Ltd co accounts and CT return is coming. Bit of work needed where you have a period greater than 12 months but again is a case of knowing that you need to pro rata.

I am trialling taxcalc account production at the moment and seems an excellent piece of software where you can post journals, and notes to the accounts, to produce the final accounts (very similar to IRIS). Can then upload directly Ltd co accounts to companies house and tag on IXBRL accounts for corporate tax submission. Also has the added value of practice management module which reduces data input need and also has task management facility so you can maintain a work in progress system. Also has mail merging facilities when producing standard letters for clients.

Looks like will be getting Taxcalc Accounts Production so can link in with Taxcalc Tax.

Regards

Mark

Accountingnewby · Veteran Member

Hello Shaun,

Thanks for the comments. I have had a look at the websites and have come to the conclusion that if I start reading

today, I should finish about 10 years after I'm dead!

Thanks for the feedback though and please keep it coming.

Best regards,

Mike

Don Tax · Expert

MarkS wrote:
I have used VT for accounts and Taxcalc for tax returns (personal and corporate) for the last year or so. Given that it isnt integrated you need to know where to input the figures in Taxcalc system but the simplestep facility that takes you through all the relevant screens is in my opinion better laid out that IRIS with the only downside that you need to input the figures. However understand if you have both taxcalc accounts and tax that sole trader/partnership information can be directly linked and that the link between Ltd co accounts and CT return is coming. Bit of work needed where you have a period greater than 12 months but again is a case of knowing that you need to pro rata.
I am trialling taxcalc account production at the moment and seems an excellent piece of software where you can post journals, and notes to the accounts, to produce the final accounts (very similar to IRIS). Can then upload directly Ltd co accounts to companies house and tag on IXBRL accounts for corporate tax submission. Also has the added value of practice management module which reduces data input need and also has task management facility so you can maintain a work in progress system. Also has mail merging facilities when producing standard letters for clients.
Looks like will be getting Taxcalc Accounts Production so can link in with Taxcalc Tax.
Regards
Mark

Very timely review Mark thanks and it looks to be worth staying with Taxcalc.
With every other sole practitioner seemingly having a combo of VT + TaxCalc it was obvious TC would want a big slice of that large pie.
Regards, Tim

Shamus · Forum Moderator & Expert

But it does raise a seperate issue Tim.

Mark ties his VT Accounts into Sage where others may use VT Accounts with VT Transaction+.

VT Accounts and VT Transaction+ link together seamlessly.

One would imagine that Taxcalc accounts and Taxcalc would also be seamless

But VT Transaction+ to taxcalc accounts would not be so really it's just moving around where the issue is.

As I say though as Mark does not use VT Transaction+ but does use Taxcalc it is a perfect sollution for him.

For people who use VT Transaction+ the question is more where can they accept the links between their software being less fluid.

I suspect that Marks may actually be the perfect sollution for some but just thought that I needed to fill in the bit that hasn't been spoken of. Namely the link to the bookkeeping software.

kind regards,

Shaun.

Don Tax · Expert

Hi Shaun,

Thanks for coming in on this - I was getting carried away - anticipating the day that bookkeeping too might be offered by TaxCalc. It seems a logical next step for them though.

I don't want to dump my old faithful Moneysoft bookkeeping (no annual fee), switch to VT for iXBRL only for TaxCalc to be offering a 3-in-1 solution sometime soon.

Tim