I'm a self-employed Sole Trader and I am VAT registered. What is the most tax efficient manner to purchase a vehicle, primarily used for business, small element of personal use?
Filed under commercial vehicle - Asked by Richard Murray (Carrigaline,Co Cork,Ireland) - Mon, 26 Dec 2016 12:51
We asked Eddie Coleman of Conlan Crotty Murray & Company Chartered Accountants for some help on this one and here was his response:
"For a self-employed VAT-registered sole trader the most tax efficient vehicle to purchase for business use would be a small commercial van/SUV. As the private use element of the vehicle is likely to be minimal VAT could be recovered on such a vehicle in the proportion that business use bears to the total usage of the vehicle. As there should be a high business usage of the vehicle most of the running costs of the vehicle, such as insurance, fuel, maintenance, etc. could be expensed for tax purposes, again in the proportion that business usage bears to overall use of the vehicle.
If an individual decides that a small commercial vehicle is not appropriate and decides to purchase a car then there would be very limited tax deductibility for VAT purposes. If a car falling into Category A, B or C is acquired, then 20 per cent of the VAT paid on purchase of the vehicle could be recovered where at least 60 per cent or more of the usage of the car is for business purposes. There is a potential claw back of the VAT recovered if the car is sold within two years of acquisition.
If the car is acquired by way of a hire purchase agreement or loan finance then the vehicle is treated as owned by the individual. The capital cost in those instances can be claimed by way of an annual capital allowance write-off equivalent to 12.5 per cent of the cost of the vehicle, restricted to business use as a proportion of overall use of the vehicle. If a new vehicle is being acquired then it may be possible to do so by way of a finance lease. In such circumstances it may be possible to write-off the capital cost of the vehicle over a shorter time frame, again subject to business use restriction on the allowable tax deduction."