When any item is being paid for on finance, your monthly payments will no doubt have a degree of interest attached. How much that is will vary dependent on your credit rating, your status, and for how long you have to pay back the loan.
It may have occasionally crossed your mind if you could assign some or all these car finance payments to a tax deduction.
In short, yes, car finance payments are tax deductible, but it isn’t quite as clear-cut as that. Much depends on you and what you use the car for.
Before attempting to get your car finance payments deducted from your tax you will need to see if you are eligible. Not all drivers will be able to claim a tax deduction on a car purchased via financing so making sure you are able to do so is certainly the first thing worth doing.
If you are not self-employed, and as a result work as an employee on the payroll of a business, you will not be able to claim any tax deductions for your car finance. If though, you run your own business, you will be able to claim tax deductions on your car finance loan. However, how much you can claim will vary based on a few things such as the purpose of your car purchase.
Being self-employed means your vehicle is likely to be used for many work-based journeys. Whether that be meetings or a job. If this is your only use for the vehicle, then getting tax deductions on your car finance should not be a problem. The vehicle becomes an allowable expense. However, should the car be used for personal use only, then no deductions will be possible.
There are many cases though where when self-employed and only owning one vehicle the chance of a crossover between business use and personal use is much more likely.
This is where things can get a little confusing. What can you do if you use your car for business and personal use?
The answer to this is one of those with both a yes and no element to it. You can have a deduction of sorts. For example, if you use your car 20% of the time for work purposes and the rest is purely for personal use, you can declare 20% of your finance payments as tax deductible.
You are often advised to log when your car is used so that your tax records are as accurate as possible. This way you could avoid any penalties and also have a degree of evidence to back up your usage should HMRC have any queries.
Falling foul of HMRC can result in very costly penalties so it is important to ensure that any declaration is as correct as possible. HMRC have very stringent policies on car tax for work purposes.
If you have purchased the car and are a business owner, you can claim the cost as what is known as a capital allowance. This means that you simply deduct the cost of your car from the business profits before paying any tax. This still leaves a little room for confusion though as the amount available to claim may be different to the value of the car.
From here HMRC will assess how much can be claimed and this will depend on a few factors, namely the date of purchase and the CO2 emissions of the car. This information will then help indicate whether you will be eligible for one of the three rates available. First year, special, or main. You will also be able to apply capital allowance to any company cars within the business as long as they are only used for work purposes.
With the evolution of cars seeing them head in a more environmentally friendly direction, the rules over CO2 emissions could change so it will be worth regularly checking the government website to see if any changes have been made. These could impact your eligibility for capital allowance.
It is worth noting that if you are paying for the car on finance, only the interest on the payments is tax deductible, to add a little more confusion, your car may be eligible for the capital allowance depending on the level of CO2 emissions. Meaning that you could claim more of a deduction.
You should also remain aware that any form of tax deduction for a car finance purchase is only possible if you are self-employed or a business owner and that car is being used for business purposes.
Should you need a car for your business, speak to our team at Euphoria Finance. We are experts in the world of cheap car finance and can help you secure a new or used car from the more than 50,000 we have access to. Acting as direct car finance lenders we give you even more chances to find the car you need. In fact, it means that even those looking for poor credit car finance can be driving the car they want without fear of being turned down. And if you are a first-time driver, let us help with first car finance. We just love to say yes! Get your quick car finance quote today!