15/05/2026
Hands up if you are getting motor finance compensation? Hands up if your colleague has said that because you used the vehicle for business journeys you'll have to pay tax on any money you get? Hands up if you want to know what HMRC rules say?
I am not sure I can see any hands up for the last question but I am going to answer it anyways!
The answer is: it depends what the payment relates to. (nothing is ever straight forward).
For many individuals, the compensation itself will not usually be taxable.
However, any interest added to the payout is normally taxable as savings income.
The important distinction is business use.
If you simply used your private vehicle for business journeys as an employee or director, and claimed mileage allowance or mileage tax relief, the compensation itself is not normally taxable.
But if you are a sole trader or partnership and previously claimed tax relief on HP or P*P finance charges, some or all of the compensation may need to be reported as business income.
For companies, where tax relief was claimed on HP finance costs, the redress and any interest may be liable to Corporation Tax.
So no, business journeys alone do not automatically make the whole payout taxable.
As always, the detail matters.
As always, I am happy to help, you just have to ask....you can put your hand down now :)
