Apportioning private use - duality headaches

stefanboro

Quick one:

Question

Something that I have never been sure on is whether or not you are allowed to simply apportion a percentage for the private element of certain expenses?

Question Examples

For example, where a sole trader elects not to use the annual milage rates and wishes to use direct cost for business travel, he estimates that 75% of his travel expenses (fuel etc) is business and 25% private. But that's all it is, an estimation. I know accountants who apportion on this basis.

I've read the guidance and have even read section 34 of ITTOIA (2005) - basically you can make a deduction where the business proportion is identifiable. But surely just plucking a guess percentage out of the air does not qualify?

And what about capital allowances? A sole trader purchases a car that qualifies for CA's. Again, he reduces the CA's by the same proportion as the travel expenses above. But the actual percentage is based on his memory combined with a record of some business trips etc etc.

Frankly I find neither the guidance nor the legislaion conclusive here and I have found the practice of accountants varies from the "anything goes" to the overly prudent. Any insights appreciated!!

Monsoon

If an educated guess says 75% business use, 25% private use, go with that.

Should HMRC enquire (which is the line of thought I take when trying to ascertain whether something in a grey are is ok or not) they will want to either see some evidence or logical thought process as to how you got to those percentages.

We can't force people to do a mileage log and if they haven't, then all we can go on is an educated guess.

Anything goes vs overly prudent is a) down to the practitioner's comfort zone and b) up to the client. In an ideal world, an accountant should outline the options, state the pros and cons, and let the client decide, as it's their signature on the return. We should not be making those decisions for the client without consulting them, especially in a grey area.

JodieR

If you were worried about it you could ask your client to keep a mileage log just for a month or so to establish a suitable %, but if you give clients 5 minutes to think about it they're usually pretty good at estimating a % - just check each year that it still seems reasonable.
And you're right to disallow the CA too, but make sure it's done as so:

Cost of vehicle: £5000
20% WDA £1000
Balance C/F £4000

If you're saying that 80% of journeys are for business the you can claim £800 capital allowances, but the Balance C/F is still £4000, not £4200. I'm sure you knew that already, but just to make sure!

stefanboro

JodieR wrote: »

If you're saying that 80% of journeys are for business the you can claim £800 capital allowances, but the Balance C/F is still £4000, not £4200. I'm sure you knew that already, but just to make sure!

I did know that but thanks for trying to cover all grounds anyway :001_smile: That's what I love about this forum! I like to give it back when I can.

It was the general principle of apportionment that I am interested in and thanks for both of your contributions Jenni and Jodie they have sincerely helped solidify my knowledge here.

Re: Jenni : My approach is always to advise the client on the options, give my opinion and ask for thier instructions making it clear that should it go pete tong they are liable. Obviously in the nicest way possible mind you!

T.C.

Just a point of note. A few years ago, during an enquiry, my client had to "prove" his business mileage. Basically they asked questions like "do you have another vehicle to use for social activities", "do you have a hobby that involves using the vehicle at weekends" etc. Just check with your client that the apportionment is sensible.

deanshepherd

JodieR wrote: »

..you could ask your client to keep a mileage log just for a month or so to establish a suitable %..

This is exactly what I tell every client to do. I also point out that because so few people do keep a mileage log HMRC will usually be entirely satisfied when one can be produced.

How many of my clients actually bother?

I'm going to estimate 10% but maybe I should start a log..