Keep it simple! Vehicle expenses for landlords

Sarah Bradford explains how using simplified expenses for vehicle costs can save work. 

Most people would prefer to spend less time dealing with administration, and landlords are no exception. When it comes to working out what expenses a landlord can deduct in calculating the profits of their property rental business, there are ways to save work.  

Using simplified expenses can save a lot of time and removes the hassle of working out the deductible amount based on actual costs. It is prudent to compare the tax deduction available using both methods to ensure that the best overall result is obtained. However, even if a higher deduction is available by reference to actual costs, it may still be preferable to use simplified expenses when the time savings are taken into account. 

Vehicle expenses 

Unincorporated landlords have the option of using mileage rates to work out the deduction for vehicle costs, rather than calculating the actual running costs and claiming capital allowances.  

The simplified expenses system can be used to work out the deduction for vehicle costs regardless of whether the landlord uses the cash basis to work out the taxable profits for his or her property rental business or the accruals basis. The cash basis is the default basis for most unincorporated property businesses, although the landlord can elect to use the accruals basis, if preferred. 

However, simplified expenses cannot be used where the landlord has previously claimed capital allowances in respect of the vehicle; the mileage rates include an element for capital depreciation. 

Using mileage rates 

Where simplified expenses are used, the landlord uses set mileage rates to claim a deduction based on the number of business miles driven in the car in the year.  

The rates are the same as those available to traders, and are shown in the table below. 

Where the landlord uses the same car for business and private journeys, the deduction must be computed by reference to the business miles only, rather than the total mileage. 

Example 1: Business and private mileage 

Ralph has a number of properties he lets out. He calculates his profits for his unincorporated property rental business using the cash basis. As he hates paperwork, he uses the simplified expenses system to work out the deduction for business travel in his car. 

He prepares his accounts to 31 March each year. 

In the year to 31 March 2020, he drove 22,000 miles in total, of which 15,640 were business miles. 

He is able to claim a deduction of £5,410 in respect of his mileage costs when calculating the taxable profits of his property rental business. 

The deduction is calculated as follows: 

(10,000 miles @ 45p per mile) + (5,460 miles @ 25p per mile) = £4,000 + £1,410 = £5,410. 

What counts as business mileage? 

It is important to appreciate that the mileage allowance can only be claimed in respect of business mileage.  

Where the landlord uses his car for both business and private journeys, a log of business mileage will need to be kept. By contrast, if the vehicle is used exclusively for business journeys, the deduction can be worked out by reference to the total mileage in the year, meaning only the start and end mileage needs to be recorded. However, this is likely to be rare – most landlords will undertake some private mileage in the year. 

Business mileage is that which relates wholly and exclusively to the property rental business. An example of travel which will count as business travel is travel between rental properties and, where the business is run from an office, between the office and the properties. However, a journey between home and the office is a personal journey, not a business one.  

Travel that is incurred as a result of the business (e.g. to attend meetings with contractors or solicitors) will also count as business mileage. Where the landlord travels from home to the let property, a mileage deduction can only be claimed if the journey is a business one.  

For example, popping into the rental property while doing the weekly shop will not turn a private journey into a business journey. However, if the main purpose of the journey is a business one, a deduction can still be claimed as long as any personal benefit is incidental. This might be the case if, for example, the landlord stops to buy a newspaper on the way to fix a faulty tap in a let property. 

It should be noted that the purpose of a journey is a question of fact – the landlord’s intention, while relevant, is not a deciding factor.  

Alternative deduction based on actual costs 

Although using mileage rates can save quite a lot of work, their use is not compulsory and the landlord may instead prefer to claim a deduction based on actual cost where this saves more tax. Where a deduction is claimed using actual costs rather than by reference to mileage rates, capital allowances can also be claimed. 

As far as running costs are concerned, a deduction can be claimed to the extent they are incurred wholly and exclusively for business purposes. Where the car is used for both business and private purposes, a deduction is permitted only for the business costs. To identify the business element, the costs will need to be apportioned. This can be done on a mileage basis.  

When working out the deduction, remember to take into account all the costs of running the car. This will include: 

• fuel; 
• insurance; 
• servicing; 
• MOT; 
• breakdown cover; 
• tyres; and 

• oil. 

Example 2: Claim for business travel costs 

Betty runs an unincorporated property business, preparing accounts to 31 March each year. In the year to 31 March 2020, she incurs the following costs in relation to her car, which she uses for both business and private journeys. 

In the year, Betty drove 15,000 miles, of which £11,250 related to business travel. 

The costs are apportioned between business and private use by reference to mileage. The business element is £3,000 (11,250/15,000 x £4,000). 

Betty is able to claim a deduction of £3,000 in respect of the running costs of her car. 

Capital allowances 

If simplified expenses are not used, the landlord can claim relief for the capital cost of the vehicle. Where the vehicle in question is a car, this will be via the capital allowances system, regardless of whether accounts are prepared under the cash basis or the accruals basis.  

The rate at which capital allowances are given depends on the level of the car’s carbon dioxide (CO2 emissions. Cars with CO2 emissions of 110g/km or less attract writing down allowances at a rate of 18%, whereas those with higher CO2 emissions attract a lower rate of writing down allowance of 6%. 

If the car is used for both private and business purposes, capital allowances are only allowed in relation to the business use of the car, and must be apportioned. Again, this can be done by reference to business and private mileage in the year.  

Cars that are used for both business and private purposes are given their own capital allowances pool, whereas cars that are used exclusively for business are allocated to the main rate pool if they have CO2 emissions of 110g/km or less, and to the special rate pool if their emission are above this level. 

Cars do not qualify for the annual investment allowance. However, a first year allowance of 100% is available for new and unused cars with CO2 emissions of 50g/km or less. 

If the landlord uses a van for business, the cost can be deducted where accounts are prepared under the cash basis. If the accruals basis is used, the annual investment allowance can be claimed for a van, or writing down allowances where the allowance limit has already been used. 

Practical tip 

Although simplified expenses save work, using actual costs may give a higher deduction, particularly if the vehicle is expensive and capital allowances are claimed. Do a rough calculation to compare the two.