Can I claim my vehicle expenses?
If you are self-employed or in a partnership and you use your own vehicle privately as well as in your business, your work related vehicle expenses are claimable. These include petrol, diesel, registration, WOF, repairs, tyres, road user charges etc. So how do you work out what portion of your expenses are work related, and therefore deductible?
You can choose one of the 4 following methods to calculate what amount to claim:
- Logbook method – keep a log book for a test period of 90 days to work out what percentage of your use is business related. This can then be used for a maximum of 3 years or until the vehicle is replaced. See IRD website here for how to use a logbook
- Mileage rates – Record your actual trips and the kms you travelled and claim these at the IRD rates. This is currently 72 cents per km. See the current rate here
This rate is only applicable to a maximum of 5,000km of business travel. If you go over 5000km you can no longer use the Inland Revenue rate but you can use a published rate from a reputable and independent organisation, such as the AA.
- Actual records – You must keep accurate records of all private and work related expenses and can claim your actual costs for the business use of your vehicle
- Default method – 25% of total vehicle expenses.
The first two methods are the most commonly used, but which is best for you will depend on the nature and extent of your business use. Bear in mind, using the logbook method you can claim GST on the business portion of the expense since you have GST invoices and receipts in relation to each expense. However, the mileage rate option does not.
Archie is a self-employed plumber and uses his van for work as well as general domestic chores and going surfing. His business is based out of his shed at his home and so he is “on work” from the moment he leaves his property. He works 6 days a week and travels around the province for work so he clocks up a lot of business travel. Whereas his jaunts down to the local surf breaks are becoming more seldom and his domestic chores are generally completed on his return from work.
In this case we would suggest that Archie keeps a logbook for a 90 day representative period which will then give us a percentage of vehicle costs that can be claimed. We would then set up some Bank Rules in Xero to automatically split the costs incurred so that he gets the maximum claim for GST and income tax with the least fuss.
The mileage rate alternative would likely be too onerous and involve logging every km travelled for every job for the whole year.
Dianne is a partner in an architects practice. Her job is predominantly office based although she does visit sites sometimes. She uses her car extensively for private travel throughout the week going to sporting events and adventuring during the weekends.
Our suggestion here would be to treat all costs as personal but to claim a deduction for vehicle costs based on the mileage rates. This would require Dianne to keep a log of all site visits and then apply the Inland Revenue rate to give an annual deduction.
Although there may be a bit of work involved in keeping the log a benefit could be gained in on-charging the site visit costs to each job, thereby recovering a cost that would normally be overlooked.
The alternative logbook option may not be suitable as the business travel is small and irregular. Each site visit may involve differing degrees of travel and so it may be hard to establish a representative logbook percentage. Also, her travel between home and work would be considered private.
Trying to work out what’s best for your business? – Get in touch!