Although using fixed rates to calculate deductions saves a lot of work, if actual costs exceed the fixed rate costs it is beneficial to calculate the deduction by reference to the actual costs. This will also allow capital allowances to be claimed. However, on the downside this will mean that records of actual costs will need to be kept.
Example:
Polly has a top of the range sports car which she uses for business purposes. She keeps a record of actual mileage and servicing costs for a year.
She undertakes 10,000 business miles and her actual costs are £6,000. If she claimed a fixed rate deduction by reference to mileage rates (see Tip 35) she would be entitled to a deduction of £4,500 (10,000 miles @ 45p per mile).
By basing the deduction on actual costs she is able to enjoy a higher deduction, reducing profit and saving tax.
She can also claim capital allowances in respect of the capital expenditure on the car.
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