Look at the Social Security Benefit (Computation of Earnings) Regulations 1996
13(4) For the purposes of paragraph (1)(a), the net profit of the employment shall, except where paragraph (10) applies, be calculated by taking into account the earnings of the employment over the period determined under regulation 11 (calculation of earnings of self-employed earners) less– (a) subject to paragraphs (6) to (8), any expenses wholly and exclusively defrayed in that period for the purposes of that employment;
Paragraphs 6 to 8 are mainly about capital expenditure and I'm assuming that this is a regular expense
The DMG says
15580 When calculating the net profit of a self employed earner the DM should deduct from the gross receipts any business expense that 1. was paid out wholly and exclusively for the purposes of the business and 2. was paid out during the assessment period and 3. was reasonably incurred (see DMG 15586) and 4. is an allowable expense (see DMG 15590).
There is no basis for refusing an expense because the loan didn't come from a bank.
They might try an argue about apportioning expenses between private and business use such as fuel, road fund license, insurance premiums, servicing, maintenance or repair charges in which case you might need to look at the 2 cases below where you will see that, even where a car is used for the purpose of a business, rather than as a core part of the business, that expenses are allowable, apportioned by private / business mileage where necessary.
In R(H)5/07 the Commissioner says
"The question whether a car is capable of being "equipment" or "machinery" is in my view not one which should depend on accounting practice, but rather is a question of the meaning of those words in the context in which they are used. In my judgment, in agreement with the Secretary of State's submission, a car is perfectly capable of falling within either of those words."
R(FC) 1/91
Formerly CFC/25/1989
Income - earnings of self-employed earner - whether motoring expenses and telephone expenses for both business and personal use may be apportioned - whether bad debts deductible - whether capital drawings relevant The claimant, who was self-employed in partnership with her husband and supplied accounts of the business, claimed family credit. The adjudication officer in awarding family credit did not allow amounts shown in the accounts for ... private motoring expenses .... The claimant appealed against the decision. In his submission to the tribunal the adjudication officer said that since the claimant and her husband had taken two weeks holiday during the period of the accounts, the calculation of earnings should have been based on a fifty week assessment period. The tribunal, in allowing the appeal, directed that the award of family credit be recalculated to allow as expenses bad debts, lunches, private use of the telephone and private motoring expenses. The adjudication officer appealed to the Commissioner. Held that: 1. expenses that could be apportioned were motoring expenses including road fund licence, insurance and repairs and maintenance, and telephone expenses including rental charges. (Insofar as the Adjudication Officers' Guide was inconsistent it was not to be followed R(SB) 28/84 cited). Apportionment by tax inspectors was cogent evidence of the amount used for the business and should be accepted in the absence of contrary evidence;
R(H)5/07 Calculation of income - self employed earnings - deductible expenses - whether repayments of capital on a loan used to purchase a replacement car are deductible - whether repayments of capital and interest apportionable in accordance with proportion of business use ....The issues in the appeal concerned the expenses which were deductible from the claimant's self-employed earnings in computing the net profit of her business in accordance with regulation 31 of the Housing benefit (General) Regulations 1987 (and equivalent council tax benefit regulations) as "wholly and exclusively incurred ... for the purposes of the employment". .... The claimant appealed to the Commissioner, contending that aspects of the tribunal's decision were wrong, and that additional amounts of expenditure should have been held deductible. In particular she claimed to deduct from her profits an apportioned amount of the repayments of interest and capital on the loan for the purchase of a replacement car, used partly for business and partly for private purposes. The appeal tribunal had held that no deduction was to be made for the capital repayment on the car loan as the car did not fall under regulation 31(6) as "business equipment or machinery". Held, allowing the appeal, that:... 2. in determining whether any, and if so what, part of the loan interest repayments for the replacement car were expenses "wholly and exclusively incurred ... for the purposes of the employment" the principle of apportionment adopted in R(FC) 1/91 applied and the apportionment should be in accordance with the amount of business mileage as a percentage of total mileage in the assessment periods in which the interest was paid (paragraphs 23 to 25);
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