Car Finance as Business Expense Self Employed

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    I have a claimant who is a self employed mobile hair dresser. She has claimed 50% all her vehicle expenses which has been accepted. She has also claimed for 50% of her car finance which in in her name, not her business' name. I have declined this as it is a personal loan and not "expended for the purposes of the business." I have quoted reg 38 in support of this.

    The claimant has advised HMRC have accepted this as a business expense – I have explained we use different regulations to HMRC re self employed expenses.

    In support of our case I have also advised that in previous year's the claimant has not declared any expenses for the purchase or finance of a car. The claimant has contacted me today to say that in previous Authorities she has claimed this and it has been accpeted, but she had no requirement to claim through us before as an ex partner paid for a car for her after he crashed hers so there was no finance associated to the last vehicle she had.

    I still think it is a personal loan not a business loan, but I can understand the claimant's quandry in that 50% of it us for the business so should be claimed. I am aware that even it the loan was in the business' name we cannot pay the interest on it, but is there any case for paying the capital part of the loan based on the circumstances?

    The claimant also raised that if she had got the loan in the businesses name, she uses it 50% for personal use so how would she declare that? I do not understand business accounts enough to know the answer to that!

    Any advice would be appreciated.




    nick dearnley

    I think you're right to refer to reg 38.  38(4) includes only "expenses wholly and exclusively incurred in that period for the purposes of the employment", so I think there is an argument to be had around whether the car finance meets that test. 

    There is caselaw – I can't remember the reference off the top of my head – which said that an expense that was shared with the clmt's domestic life could not meet the 'exclusive' test and none could of it be allowed.  But then again, a proportion of motoring expenses has always been allowable.  For example, there is an argument that insurance and road tax are always required, so cannot be a business expense.  Where the clmt pays more to include business insurance, that would be allowable, likewise fuel used for work.

    I think the main question has to be whether she would have the car on finance if she was doing any other job.  Her argument seems to be that she needs a car for work, so any expenses towards that (whether all or a portion of it) must be allowable.  I'm not so sure.

    John Boxall

    Thinking about it, if she is a self employed mobile hair dresser then by definition she needs a vehicle for work, it may be that some of the cost of it can be defrayed by her domestic use – and I can argue this for a large number of items eg phones & computers but as far as I can see it looks very much like an expense that is essential for her employment.

    Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and in short you are for ever floored.

    Wilkins Micawber, Ch12 David Copperfield


    I think the process here is two fold.

    Firstly, can you allow any of the charge under the “wholly and exclusive charge” rules

    Secondly and if yes, apply the rules set out in the specific regs. If the car finance is really just hire purchase then the interest is allowable but the repayment of capital is not. It is up to the claimant to provide this info….how much is for what….if she cannot then you cannot allow anything.

    Note allow the need to establish whether this is a new business etc… expenditure is never allowable nor is expansion of the business. So if she previously had a car and has now bought a special hairdressing van then that would fail on both and none of the charges would be allowable.

    Expansion of the business is always an important consideration.


    The Herbalife case is always a good starting point on this type of case.


    Sorry for being late to this post, but I was going to refer to R( H ) 5/07 (para's 23-25 and para's 26-28 )

    I think you may find it helpful.


    Thanks everyone. I have asked the claimant for more documents regarding the loan – i.e. if it was directly related to the car purchase as a finance agreement or just a bank loan that is not directly related. If it is directly related I think I can argue that 50% of the interest payments are an allowable business expense in line with the car insurance and car tax that we allow.


    If you take into account the car is not '"wholly and exclusive" for her business so no expenses would be allowable for it at all.


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