UK - Self Employed Car Tax - Please Explain?

Basically, if you have personal access to a compay car you have to pay income tax on the 'benefit'. The benefit is worked out from the value of the car.

The best way to do this is to buy the car yourself, and your company can pay you 40p per mile for using it for work.

I agree with the 1st answer and I use this method for my own Ltd company for the following reasons:-

I do around 20,000 miles a year for business - claiming 40p per mile Tax free for the 1st 10,000 miles, then 20p per mile for the next 10,000 miles gives me a 6000 pound Tax Free Income.

I reckon that it costs about 20p per mile to run my little C2 so for the 1st 10,000miles I make a tax free profit of 2 grand. after 10,000miles i about break even.

I need a car anyway so this saves me quite a bit of money + minimal paperwork, all i do is keep a log of the journeys i make.

IF you were buying a massive car like a Merc or BMW then you are much better going down the lease route as you will save thousands on VAT - BUT you tax bill will increase because it is a taxable benefit and bigger car/more emmissions = bigger tax bill.

I would buy it yourself and claim the allowance! I would be supprised of your accountant disagrees.

PS - Don't get the VTR with the flappy gearbox - its rubbish!

Ignore what Mark says - he is talking about the tax arising on the benefit that is assessed on employees who have a car provided by his/her employer. You are self employed and a completely different tax regime applies which is fundamentally as you suggest in your question although the accounting for leased vehicles is rather more complicated than merely charging the leasing costs against profit. Your accountant will need to explain the niceties to you.

Right, first things first. You will need to keep records of your personal mileage - personal mileage includes between your place of work and home (unless your home is your 'base'). The value of the vehicle depends on how much of your leasing cost will be allowed. If it is over £12k new then the leasing costs deductible from your profits will be restricted. Go to your accountant with details the list price of the vehicle (including any extras) and details of the finance payments. He will be able to calculate the excess over Capital Allowances that would have been due if you had purchased the vehicle outright and restrict the lease payment deduction accordingly for this and your private usuage. Fuel will also be restricted to the amount that relates to private mileage.

Read this http://www.hmrc.gov.uk/manuals/bimmanual/bim47715....

Notmarried is wrong.

The list price of the car is irrelevant, you are not paying tax on any benefit..

All the lease costs are deductible against profits, with a restriction for private use, which you state is 20%.

The restriction is an adjustment to your taxable profits. You don't make a seperate payment or account for the tax on private use, it's included in the total tax that you pay.

You are paying for your accountant to act in your best interest. He will know the ins and outs of what and how much you are entitled to claim for everything.

Our accountant is like our priest, we tell him everything and he does a good job, well worth his fee.

do as mark says or your tax bill will go through the roof