There are many costs when owning a vehicle such as fuel, repairs and maintenance, insurance, car tax, roadside assistance, depreciation, parking and lease payments. This leaves many dentists questioning the best possible way to purchase a car in order to minimise their tax bill. Lansdell & Rose have outlined and outlined factors to consider when purchasing a vehicle to maximise your tax relief.
The methods of tax treatment differentiate between different types of businesses and there are clear distinctions between how the tax of a vehicle works when trading as a sole trader or partnership, as opposed to a limited company. For most newly qualified doctors and dentists who are sole traders or in partnerships, the purchase of a vehicle can be represented as an asset to the business. Purchasing the vehicle through the business account would mean the company would gain full tax relief for all business use of the vehicle. An adjustment can then be made in the tax return to represent any proportion of private use.
For limited companies, a different approach applies and there are two main options. The first is that the company owns the vehicle and claims full tax relief, excluding fuel, as claiming tax relief on fuel may have further implications. The employee/director pays tax for their personal use for the vehicle. The second option sees the director purchasing the vehicle and claiming mileage at 45p per mile for the first 10,000 miles and 25p thereafter. The company consequently claims tax relief and the director incurs the cost of the vehicle through the mileage claim. It is important to note that traveling to and from work is considered private and not business use of the vehicle.
Deciding the most tax beneficial ownership of a vehicle is largely dependent on the type of vehicle and most notably its fuel emissions. If the vehicle’s fuel emissions are less than 95g/kg then it might be more tax efficient for the company to own the car. However, if the emissions are higher than 95g/kg you could receive better tax relief if you own the vehicle personally.
Lansdell & Rose are specialist medical and dental accountants and tax advisers who answer questions like these for dentists and medical consultants every day. If you have a question please contact us to ensure you maximise your tax relief before making key decisions for you and your business.
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