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Sunday 25 September 2016
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Please advise as to the best way of maximising my tax return on purchasing or leasing a car for frequent home visits.

Question in full:

I would be grateful if you could advise me as to the best way of maximising my tax return on purchasing or leasing a car for my job. I am a GP partner with frequent home visits and I work in out of hours services as a locum as well.

Answer:

Car acquisition
When considering the funding of a car (or any other asset) acquisition you should not let the tax tail wag the commercial dog. First make sure the deal is sensible commercially.

For tax purposes, whether to purchase or lease will depend upon not only maximising the tax deductible costs but also the timing of when these occur. In all cases costs will be restricted for any private use of the car.

Purchase
Purchasing a car will allow you to claim the business element of running expenses and capital allowances (tax depreciation). Capital allowances are given at prescribed rates of either 20% or 10% per annum of the purchase price on a reducing balance basis depending upon the CO2 emissions of the vehicle.

For certain low-emission cars, 100% capital allowances can be claimed in the year of acquisition. On a future disposal of the car, the sale proceeds will be compared to the tax written down value (ie, remaining purchase cost not claimed) and a final balancing allowance or charge is made.

This means that over the whole period of ownership of the vehicle you will get a tax deduction for the total business car costs.

Lease
Leasing a vehicle will allow you to claim the business element of running expenses. In addition, the leasing costs can be claimed, but where CO2 emission exceeds 160g/km there is a statutory disallowance of 15% of leasing costs in addition to any private adjustment.

The tax benefit of leasing over purchasing may be that you get an earlier deduction for costs – ie, an earlier tax bill is reduced giving a cash flow benefit. However, over the whole period of the leasing, the maximum deduction for higher-emission vehicles can never exceed 85% of the leasing costs, plus other business-running expenses.

VAT
I assume you have little or no ability to recover VAT.