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09 October 2000
The August edition of the ICAEW 'Medical Group News' included an article which expressed an opinion that it is generally accepted that doctors need to have a second vehicle at their disposal, so it is acceptable to claim for the road fund licence and insurance for that second vehicle. It went on to state that to claim a proportion of the full expenses for two or even three cars is dangerous.
Our practice is to include the full running costs of the second car and then have a high private use element.
Our practice is to include the full running costs of the second car and then have a high private use element.
The August edition of the ICAEW 'Medical Group News' included an article which expressed an opinion that it is generally accepted that doctors need to have a second vehicle at their disposal, so it is acceptable to claim for the road fund licence and insurance for that second vehicle. It went on to state that to claim a proportion of the full expenses for two or even three cars is dangerous.
Our practice is to include the full running costs of the second car and then have a high private use element.
If the logic is to claim relief for the standing costs of having a second vehicle available in the event that the first car breaks down, why stop at the road fund licence and insurance? The initial costs of purchase, together with the annual service, have to be paid irrespective of mileage, business or otherwise.
Doctors now commonly use 'out of hours' cover. Does not the availability of this service render the 'second car' argument void?
Also, many doctors like to spread their car usage over two vehicles. If there is actual business use of two cars (say 80 per cent of the main car and 50 per cent of the second, based on mileage) is it reasonable to claim for both vehicles in these proportions because they have been used for business purposes, even though there is an element of personal choice in doing so?
(Query T15,689) Hippocrates.
I do not believe it is generally accepted that two cars are a business necessity with the consequence that costs of an emergency vehicle are automatically tax deductible. Single male doctors and most female doctors seem to manage with one vehicle, whereas those married with a wife usually require a car for emergency use! Additionally, when considering any capital allowances claim, the car will need to be owned by the claimant — not by a spouse (see Readers' Forum query T15,614, 1 June 2000). Tax relief for motor expenses is a major issue, from both the Revenue and taxpayer's perspectives with most reviews of business proportions resulting in the true business percentage turning out to be lower. It is assumed 'Hippocrates's' clients keep adequate records of business mileage to support the percentages claimed, as otherwise they may not satisfy the record keeping requirements of self assessment.
Provided the second car is used for business, there is no reason why tax relief on an appropriate proportion of relevant running costs cannot be claimed. I would suggest that the advice in 'Medical Group News' may not always be correct. If the second car is primarily used by the family, 'Hippocrates' suggests this on the basis of a high non-business restriction, then fixed costs such as road fund tax and insurance may not be wholly and exclusively for business because they would be incurred whether or not business mileage was undertaken. Fuel and servicing and other costs that depend upon usage can be proportionately deducted. All items of expenditure, where business and private elements are involved, need to be reviewed to see if they can be apportioned. One example (although not a strict parallel with Schedule D rules) is the treatment of telephone calls and rental when reimbursed by an employer to an employee. The rental, unlike calls which can be apportioned because as a question of fact particular calls will be for business, can never be subject to a section 198, Taxes Act 1988 claim because the expense would be incurred privately even if no business calls were made. If the second car is mainly used for family purposes then only costs which vary with usage should form part of any personal expenses claim.
For all medical practitioners, the increased use of deputising services affects the personal expenses claim because the impact is to reduce some costs (perhaps less justification for spouse's salary) that might be eligible and increase others (the cost of the deputising service). This does not alter the basis upon which expenses are claimed, they still have to satisfy the 'wholly and exclusively' test. — Flipper.
The circumstances outlined occur far more widely than the query suggests and, by means of tidy records, the tax consequence can be managed with little risk of a serious challenge.
Some traders have two cars, a luxury one for (mainly) personal use and a hack for the trade. The luxury car tends to be used when delivering tenders or prospecting for business (to make a more polished impression), and to be a stand-in when the hack is in the repair shop. Because they live on the road, some couriers keep a spare motorcycle, so as to stay mobile when the main machine is off the road for repair. Others have a crucial need for a car that will start without trouble, go anywhere at any time, and cope with all weather conditions.
Such people have two options. They can incur the high cost (£30,000 plus) of cars of outstanding reliability or they can run two cars. Whatever option they, or others like them, take, the principles of accounting for the private and trading elements of running costs are the same for two or more cars as for one. The running cost of each car must be recorded, and its mileage logged, or at least effectively monitored, so that the expense can be accurately split between business and private use. The amount charged to revenue account is the trade portion so ascertained. The workings should appear in a schedule to the accounts, so that the Inspector can see that it is reasonable and genuine without the need for opening an enquiry.
In the case of those who are VAT registered, car fuel needs special attention. Table disallowances of input tax apply where the tax on privately used fuel passes through the books, even if it is later adjusted out of the claim. What is worse, if the car's annual mileage is under about 12,000 miles, the table disallowances are likely to exceed the VAT on a full year's supply of fuel, which is quite unacceptable. The only remedy is to see that private use VAT is not entered in the first place. During the VAT reporting period, for each car:
* make a memorandum record of fuel bought, and keep track of the trade and private mileage;
* at the end of the reporting period, determine the total private and trade miles run;
* divide the total miles run by the total litres (or gallons) bought, to determine the miles per unit of fuel;
* on the basis of that figure, evaluate private mileage in terms of units of fuel and set aside bills covering that much fuel;
* enter the trade bills in the records, processing the VAT as normal;
* total the private use bills and log them in the record as a single entry, gross, making no claim for input relief on this amount.
The effect of this is that no private VAT has been charged in the books at any stage, so the table disallowance does not apply. At the same time, the record shows the net cost of fuel (total paid less input tax recovered), which is needed in order to apportion the use accurately for the year-end accounts. Particulars of the workings should be kept, so as to demonstrate to a VAT auditor that there is a system in place to eliminate private VAT and that it is accurate. — Man of Kent.
Our practice is to include the full running costs of the second car and then have a high private use element.
If the logic is to claim relief for the standing costs of having a second vehicle available in the event that the first car breaks down, why stop at the road fund licence and insurance? The initial costs of purchase, together with the annual service, have to be paid irrespective of mileage, business or otherwise.
Doctors now commonly use 'out of hours' cover. Does not the availability of this service render the 'second car' argument void?
Also, many doctors like to spread their car usage over two vehicles. If there is actual business use of two cars (say 80 per cent of the main car and 50 per cent of the second, based on mileage) is it reasonable to claim for both vehicles in these proportions because they have been used for business purposes, even though there is an element of personal choice in doing so?
(Query T15,689) Hippocrates.
I do not believe it is generally accepted that two cars are a business necessity with the consequence that costs of an emergency vehicle are automatically tax deductible. Single male doctors and most female doctors seem to manage with one vehicle, whereas those married with a wife usually require a car for emergency use! Additionally, when considering any capital allowances claim, the car will need to be owned by the claimant — not by a spouse (see Readers' Forum query T15,614, 1 June 2000). Tax relief for motor expenses is a major issue, from both the Revenue and taxpayer's perspectives with most reviews of business proportions resulting in the true business percentage turning out to be lower. It is assumed 'Hippocrates's' clients keep adequate records of business mileage to support the percentages claimed, as otherwise they may not satisfy the record keeping requirements of self assessment.
Provided the second car is used for business, there is no reason why tax relief on an appropriate proportion of relevant running costs cannot be claimed. I would suggest that the advice in 'Medical Group News' may not always be correct. If the second car is primarily used by the family, 'Hippocrates' suggests this on the basis of a high non-business restriction, then fixed costs such as road fund tax and insurance may not be wholly and exclusively for business because they would be incurred whether or not business mileage was undertaken. Fuel and servicing and other costs that depend upon usage can be proportionately deducted. All items of expenditure, where business and private elements are involved, need to be reviewed to see if they can be apportioned. One example (although not a strict parallel with Schedule D rules) is the treatment of telephone calls and rental when reimbursed by an employer to an employee. The rental, unlike calls which can be apportioned because as a question of fact particular calls will be for business, can never be subject to a section 198, Taxes Act 1988 claim because the expense would be incurred privately even if no business calls were made. If the second car is mainly used for family purposes then only costs which vary with usage should form part of any personal expenses claim.
For all medical practitioners, the increased use of deputising services affects the personal expenses claim because the impact is to reduce some costs (perhaps less justification for spouse's salary) that might be eligible and increase others (the cost of the deputising service). This does not alter the basis upon which expenses are claimed, they still have to satisfy the 'wholly and exclusively' test. — Flipper.
The circumstances outlined occur far more widely than the query suggests and, by means of tidy records, the tax consequence can be managed with little risk of a serious challenge.
Some traders have two cars, a luxury one for (mainly) personal use and a hack for the trade. The luxury car tends to be used when delivering tenders or prospecting for business (to make a more polished impression), and to be a stand-in when the hack is in the repair shop. Because they live on the road, some couriers keep a spare motorcycle, so as to stay mobile when the main machine is off the road for repair. Others have a crucial need for a car that will start without trouble, go anywhere at any time, and cope with all weather conditions.
Such people have two options. They can incur the high cost (£30,000 plus) of cars of outstanding reliability or they can run two cars. Whatever option they, or others like them, take, the principles of accounting for the private and trading elements of running costs are the same for two or more cars as for one. The running cost of each car must be recorded, and its mileage logged, or at least effectively monitored, so that the expense can be accurately split between business and private use. The amount charged to revenue account is the trade portion so ascertained. The workings should appear in a schedule to the accounts, so that the Inspector can see that it is reasonable and genuine without the need for opening an enquiry.
In the case of those who are VAT registered, car fuel needs special attention. Table disallowances of input tax apply where the tax on privately used fuel passes through the books, even if it is later adjusted out of the claim. What is worse, if the car's annual mileage is under about 12,000 miles, the table disallowances are likely to exceed the VAT on a full year's supply of fuel, which is quite unacceptable. The only remedy is to see that private use VAT is not entered in the first place. During the VAT reporting period, for each car:
* make a memorandum record of fuel bought, and keep track of the trade and private mileage;
* at the end of the reporting period, determine the total private and trade miles run;
* divide the total miles run by the total litres (or gallons) bought, to determine the miles per unit of fuel;
* on the basis of that figure, evaluate private mileage in terms of units of fuel and set aside bills covering that much fuel;
* enter the trade bills in the records, processing the VAT as normal;
* total the private use bills and log them in the record as a single entry, gross, making no claim for input relief on this amount.
The effect of this is that no private VAT has been charged in the books at any stage, so the table disallowance does not apply. At the same time, the record shows the net cost of fuel (total paid less input tax recovered), which is needed in order to apportion the use accurately for the year-end accounts. Particulars of the workings should be kept, so as to demonstrate to a VAT auditor that there is a system in place to eliminate private VAT and that it is accurate. — Man of Kent.
