If you are considering taking out a business loan to buy a vehicle that you will use for your work, you will need to know what the tax implications are for yourself and for your business.
If you drive a car as part of your job, you will calculate your tax deduction figure using the standard mileage rate. However, there are three other business vehicle deductions for your car that you should remember to take advantage of.
Car loan interest is tax deductible on a business vehicle
If you opt to use the standard mileage rate to claim back against tax, you can’t make a separate claim for road tax, insurance or petrol, because these expenses are included in the mileage rate. Note here that depreciation is also factored in.
However, you are still entitled to deduct these three additional expenses:
• The interest that you are paying on a business car loan
• Parking expenses and road, tunnel or bridge tolls
• Personal property tax that was paid on the vehicle when you bought it
None of these items are included in the standard mileage rate, so you can deduct them.
The largest outlay that you will have on your company car is the interest that will be accrued on the loan. Note here that you may only deduct loan interest on your car if it has been purchased specifically for use as a company vehicle, not for a personal use only vehicle.
You can also deduct interest if you have to take out a remortgage on your home to finance the company vehicle.
However, note that you must calculate the percentage of interest and tax on the business use and personal use of the car. For example, if you calculate that you use your car 50% for personal use and 50% for travel specifically to do with your business, you can deduct half of the loan interest as a business operating expense. This amount can be claimed in addition to your business mileage deduction.
So, remember to claim the standard mileage rate, parking fees and tolls and the business percentage of the loan interest that you are paying for your car loan. For more advice and information on what you are entitled to claim for, it’s a good idea to have a chat with your accountant. Your finance broker or lender may also be able to give you more guidance on the tax implications of taking out a loan to buy a car for business use.