Owning a motor vehicle in a business can be a tricky thing to know what best to do. There are different rules for companies as opposed to sole traders or partnerships. I will try to go into this a little below, BUT if you have any specific questions please get in touch.
If you are a sole trader or in a partnership and you use your own vehicle in the business, you can claim the running costs for income tax. If you use the vehicle strictly for business, you can claim the full running costs, without making any adjustments. If you use the vehicle to travel from home to work, or any personal travel, you will need to separate the running costs of your vehicle between business and private use. (Travel between home and work is not classed as business use.)
You should keep a logbook for at least three months every three years. You will need to record the distance, date and reason for the trip in the logbook. You can use the difference between the odometer readings at the start and end of the three months to work out the percentage of vehicle expenses you can claim. Without a logbook you may claim up to 25% of the vehicle running costs as a business expense by default. However, you could be asked to substantiate the percentage claimed.
When a company owns a car, there are now two options, and this depends on your company. First Option is that the company owns it out right and It can claim all the expenses without making a private use adjustment. However, the company must pay fringe benefit tax if the vehicle is available for employees’ or shareholder-employees’ private use. The other option if you have a close company (less than 5 shareholders) and you purchase a vehicle after 1 April 2017, you can elect to do a logbook and use the logbook option as above for sole traders and partnerships.
The following general principles apply to fringe benefit tax on motor vehicles:
If a company owns a vehicle, as long as a vehicle is available for private use (for example, travel between home and work) by your employees, including shareholder-employees, you must pay fringe benefit tax. Your liability does not depend on whether the employees actually use that vehicle. There is an exemption to this, but this must be met.
Work-related vehicle exemption
FBT does not apply to a vehicle if it meets all of the following conditions:
- it is drawn or propelled by mechanical power (this includes trailers)
- it has a gross laden weight of 3,500 kg or less
- it is not principally designed for carrying passengers
- it has prominent company branding that cannot easily be removed
- you tell your employees in writing that the vehicle can only be used for travel between home and work, and for travel related to the business, such as stopping at the bank on the way home from work.
Sole traders or partners in a partnership are not required to pay fringe benefit tax on a business vehicle they use privately. However, they usually record their business use of the vehicle, as they must make an appropriate adjustment in their income tax and GST returns.
Inland Revenue Mileage Rates
Alternatively, you may use your logbook records to claim back Inland Revenue mileage rates on your vehicle if you own the vehicle personally and use it for business, you must still record the opening odometer and closing odometer at balance date each year as the amount the vehicle travels for both business and personal use within a year determines what rate you can claim. IRD publish these rates yearly.
Depreciation
If a business purchases a vehicle the vehicle’s purchase price cannot be claimed in one lump sum. Vehicles depreciate over a number of years according to standard Inland Revenue rates.
As always please get in touch to discuss your specific situation. If you have a vehicle available for private use and you think you are claiming incorrectly please let me know.