Author: Glenn

If you are self-employed, it is important to understand which car and travel costs can be claimed.

You can claim allowable business expenses for car, van, or travel costs, which reduce your taxable profit. Typical allowable costs include:

• Vehicle insurance
• Repairs and servicing
• Fuel
• Parking
• Hire charges
• Vehicle tax and licence fees
• Breakdown cover
• Train, bus, tram, air, and taxi fares
• Hotel rooms
• Meals on overnight business trips

You cannot claim for:

• Non-business driving or travel costs
• Fines or penalty charges
• Personal travel, including commuting between home and a regular workplace, is generally not allowable.

For vehicle costs, you may choose between claiming actual costs or using HMRC’s simplified expenses which is a flat-rate allowance for mileage.

If you buy a vehicle for your business, how you claim the cost depends on your accounting method. Under traditional accounting, you can claim capital allowances on the purchase cost. If you use cash basis accounting, you can also claim capital allowances as long as you are not using simplified expenses. For all other types of vehicles or associated costs, you can claim them as allowable business expenses.

The question of whether or not you are required to charge VAT when selling a company car depends on how the vehicle was bought and whether VAT was recovered at the time. Understanding these distinctions can help ensure the correct VAT treatment and avoids costly errors.

• If your business sells a car on which VAT was recovered, such as a pool car or driving school vehicle, you must charge VAT on the full selling price and issue a VAT invoice if requested. These sales are not VAT-exempt and cannot use the second-hand margin scheme.
• If VAT was charged but blocked when the car was bought, you do not charge VAT on the sale. The sale is VAT-exempt, and no VAT invoice can be issued. Any VAT directly linked to the sale, such as auction fees, is also exempt input tax.
• Where VAT was not charged on purchase, for example if the car was bought from a private individual or under the margin scheme, you may sell it using the VAT margin scheme, accounting for VAT on the profit margin.
• For commercial vehicles, VAT is charged on the full sale price if any VAT was charged when the vehicle was purchased. If no VAT was charged (for example, on a van bought from a private individual), the margin scheme can be used.
• Special rules apply for vehicles bought from an insurance company or finance house, second-hand vehicles moved from Great Britain to Northern Ireland and exported vehicles, which are usually zero-rated if conditions are met.

Business Asset Disposal Relief (BADR) can significantly reduce the Capital Gains Tax due when selling a business or shares, but with higher rates coming from April 2026, timing and eligibility matter more than ever.

BADR applies to the sale of a business, shares in a trading company, or an individual’s interest in a trading partnership. When this relief is available, a reduced Capital Gains Tax (CGT) rate, currently 14%, is applied instead of the standard rate. These rates will increase in the new tax year starting on 6 April 2026 to 18%. As a result, disposals made after April 2026 will face a higher CGT rate.

To qualify for BADR, certain conditions must be met:

Sale of a Business or Business Closure:

• You must be a sole trader or business partner; and
• You must have owned the business for at least 2 years leading up to the sale or closure.
• You must dispose of your business assets within 3 years to qualify.

Sale of Shares or Securities:

Both of the following must apply for at least 2 years up to the date you sell your shares:

• You must be an employee or office holder of the company (or a company within the same group).
• The company’s main activities must involve trading, not non-trading activities like investment, or it must be the holding company of a trading group.

Additional rules can apply if the shares are from an Enterprise Management Incentive (EMI).

Currently, you can claim a total of £1 million in BADR over your lifetime, allowing you to qualify for the relief multiple times. The lifetime limit may be higher if you sold assets before 11 March 2020.

The salaried member legislation applies to certain members of a Limited Liability Partnership (LLP) whose terms of membership are more like an employee than a partner. To be a salaried member, the individual must perform services for the LLP in their capacity as a member.

The legislation uses a three-part test. If all three conditions apply, the member is classified as a salaried member for tax purposes:

• Condition A – Disguised salary: At least 80% of the member’s pay is fixed, or any variable amounts do not vary in line with the LLP’s overall profits or losses.
• Condition B – Lack of influence: The member has no significant influence over the LLP’s affairs.
• Condition C – Insufficient capital stake: The member’s capital contribution is less than 25% of their expected reward package.

If a member can show that at least one condition does not apply, they continue to be treated as a partner.

The rules do not apply to:

• Companies
• Individuals who do no more than invest money
• Individuals who no longer provide services for the LLP but continue to receive a profit share

HMRC examples illustrate that remuneration linked to overall firm profits, rather than individual performance, does not create a salaried member situation. Professional qualifications or experience are also irrelevant, what counts is the member’s role and risk exposure in the LLP.

Setting up the correct tax code when a new employee starts is essential, as even small payroll errors can lead to unnecessary tax overpayments and avoidable complications later on.

When hiring a new employee, employers need to ensure the correct tax code and starter declaration are set up in their payroll system. Using the wrong tax code can cause the employee to overpay taxes, so accurate information is essential. Much of this information is provided on the employee’s P45, so it is important to remind new employees to bring it on their first day.

If the employee does not have a P45, they can complete HMRC’s online PAYE starter checklist. A paper version is also available if they cannot access the online tool. Employers must retain this information in their payroll records for the current tax year and the following three years. Once completed, HMRC’s online tools can be used to determine the correct tax code.

The starter checklist should be used in cases where the employee:

• Has a student or postgraduate loan
• Has personal details that differ from their P45
• Does not have a P45
• Is temporarily working in the UK for an overseas employer

Once completed, the checklist can be submitted to the employer by email, post, or in person. There is no need to send it to HMRC.