Clean It Up
UK Window Cleaning Forum => Window Cleaning Forum => Topic started by: MATT BATEMAN (OWC) on April 15, 2013, 11:27:48 am
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I was speaking to someone yesterday about being able to offset new vehicle purchase costs aginst your tax liability. He was implying that only a certain percentage can be offset. I know its a capital cost and so is spread out over a number of years.
However, if you buy a vehicle for £20,000 and you finance this cost with £12000 HP and £8000 'cash' surely you can still offset the same amount of expenditure as if it was fully financed ? ? ?
Confused now ??? ???
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hi matt, my understanding is that you can you aia allowance and write all of teh van off as one expenditure - here is the link that explains it better than me :)
http://www.hmrc.gov.uk/manuals/camanual/ca23084.htm
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Van, all of it, car percentage of it and everything that goes with it eg service, tyres, diesel, tax, insurance etc
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The interest on the finance will be tax deductable too
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The interest on the finance will be tax deductable too
Not according to the HMRC. Spoke to them an hour, interest is not tax deductible.
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hi matt, my understanding is that you can you aia allowance and write all of teh van off as one expenditure - here is the link that explains it better than me :)
http://www.hmrc.gov.uk/manuals/camanual/ca23084.htm
Ta ;D
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You can offset the whole purchase price in year one, but only if it is used exclusively for your work. At least that is my understanding nd I have no idea how rigid that might be if push came to shove. E.g. Could you drop a child at school on way to first job if it is entails a detour?
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You can offset the whole purchase price in year one, but only if it is used exclusively for your work. At least that is my understanding nd I have no idea how rigid that might be if push came to shove. E.g. Could you drop a child at school on way to first job if it is entails a detour?
Only if you buy it outright. if its over a number of years you cannot.
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The interest on the finance will be tax deductable too
Not according to the HMRC. Spoke to them an hour, interest is not tax deductible.
Funny that, I took out a bank loan for a van and my accountant wanted details of the interest on the repayments, I assumed it was for tax purposes...maybe he was just being nosy
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Funny that, I took out a bank loan for a van and my accountant wanted details of the interest on the repayments, I assumed it was for tax purposes...maybe he was just being nosy
He probably wanted to know so he knew how much not to offset.
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Off topic I know but..when buying a new van consider the VAT that is charged not only on the purchase price, but also on monthly repayments. If you are not VAT registered this can add a considerable amount to your total outlay which cannot be reclaimed.
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You can offset the whole purchase price in year one, but only if it is used exclusively for your work. At least that is my understanding nd I have no idea how rigid that might be if push came to shove. E.g. Could you drop a child at school on way to first job if it is entails a detour?
Only if you buy it outright. if its over a number of years you cannot.
Don't you always buy it outright? Otherwise it is leased isn't it? Not sure how HP works though. But in my case I bought mine outright, but with a loan.
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If you buy a vehicle with finance, lets say spread over 4 years, you cannot put the whole cost of the vehicle against any single given tax years liability. You can only put what you have paid out in that year against your tax liability. Which'll be a quarter of the total cost if you spread the load over 4 years. You cannot include any interest paid on the loan.
If however you buy the vehicle outright in one hit, the full cost of vehicle paid off straight away you wont be paying interest anyway but you can put the full cost of the vehicle against any given tax year I believe, although it'll probably be better to spread the cost over a number of tax years to fully appreciate the potential tax savings.
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Off topic I know but..when buying a new van consider the VAT that is charged not only on the purchase price, but also on monthly repayments. If you are not VAT registered this can add a considerable amount to your total outlay which cannot be reclaimed.
Since when?
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If you buy a vehicle with finance, lets say spread over 4 years, you cannot put the whole cost of the vehicle against any single given tax years liability. You can only put what you have paid out in that year against your tax liability. Which'll be a quarter of the total cost if you spread the load over 4 years. You cannot include any interest paid on the loan.
If however you buy the vehicle outright in one hit, the full cost of vehicle paid off straight away you wont be paying interest anyway but you can put the full cost of the vehicle against any given tax year I believe, although it'll probably be better to spread the cost over a number of tax years to fully appreciate the potential tax savings.
Confused. I was under the distinct impression that you offset the total in year one unless it is a lease.
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Talk to Frank......!
Mr B
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Well I've put my deposit down today. Ill speak to my accountant when I can get hold of her. No answer today.
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Off topic I know but..when buying a new van consider the VAT that is charged not only on the purchase price, but also on monthly repayments. If you are not VAT registered this can add a considerable amount to your total outlay which cannot be reclaimed.
Since when?
You can't reclaim VAT if you're not VAT registered.
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If you buy a vehicle with finance, lets say spread over 4 years, you cannot put the whole cost of the vehicle against any single given tax years liability. You can only put what you have paid out in that year against your tax liability. Which'll be a quarter of the total cost if you spread the load over 4 years. You cannot include any interest paid on the loan.
If however you buy the vehicle outright in one hit, the full cost of vehicle paid off straight away you wont be paying interest anyway but you can put the full cost of the vehicle against any given tax year I believe, although it'll probably be better to spread the cost over a number of tax years to fully appreciate the potential tax savings.
There's a pretty simplified way to account for vans, systems etc.. and its the Annual Investment Allowance. I think its 25k per year, you can write off in one go. Their maybe a temporary rise on the limit of it to 250k, not that it'll apply to most of us. And its probably easier and more straighforward for anyone paying cash for older secondhad vans, and maybe systems..
I can't see anything in it to restrict you claiming, or rather using your allowance for a new van though even if it is on finance over four years or whatever. To my understanding you use the allowance and the payments for the next few years are your own worry out of your nett profits as you would have used up the allowances in the year of purchase.
It may well be worth asking about, potetially in could put you at a loss which can be carried over too.
http://www.hmrc.gov.uk/capital-allowances/plant.htm
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Just to add, i can't see why this wouldn't work with a sole trader buying a new van on finance. You've introduced an asset to your business, you are personally liable for the asset not the business. Probably different requirements for Ltd Co status and the accounting requirements, but it should be fine for a sole trader.
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Off topic I know but..when buying a new van consider the VAT that is charged not only on the purchase price, but also on monthly repayments. If you are not VAT registered this can add a considerable amount to your total outlay which cannot be reclaimed.
Since when?
You can't reclaim VAT if you're not VAT registered.
You never pay VAT twice.
You only ever pay VAT on a van, (car as well) once. If you take out an ordinary Hire Purchase finance deal on a new van, you pay the basic price + VAT and any other taxes due.
The finance deal is then worked out on the total price paid (including VAT), less the deposit. Interest per annum is then added to the amount financed and the time period becomes the monthly instalment.
VAT is payable on all new vehicles. If the new owner is VAT registered he pays the full price including VAT and claims the VAT back at the end of the quarter. When he sells it the van is classed as VAT qualifying. This means the second owner has to pay the VAT unless he is also VAT registered. The dealer makes adjustment for the value of the trade-in depending on its VAT status. (A VAT qualifying van will be traded in at a price that excludes VAT so he is sure to make his profit on resale and not overprice the van for the next person who buys it that may not be VAT registered.
So an example. £8000.00 + VAT £1600.00 = £9600.00. You put down 25% deposit of £2400.00 = £7200.00 to be financed. £7200.00 x 5% flat pa interest over 3 years = £1080.00 interest. Total amount to pay over the period = £8280.00 divided by 36 months = £230.00 per month.
If you took out a leasing deal then the monthly rentals are calculated on the basic price and you get a monthly rental amount + VAT. In this case you will pay VAT over the period and not up front. If you took out a finance lease that didn't have a final balloon payment, then you would pay more VAT than had you financed. This is because you paid VAT on the interest and other leasing costs which you wouldn't have with HP. However, the VAT is charged from the lower base so there isn't that much difference.
So yes, you need to be a aware of the value of your purchase when buying a VAT qualifying van. As non VAT registered sole traders we could get caught out by a crafty salesman who disguises his OTR (on the road) price in a 'cheap' weekly instalment figure. In most cases the dealer will be focusing his sales efforts on a VAT registered sale. At 20% added VAT the van could easily be overpriced for a non VAT registered buyer, but still within price acceptance for a VAT registered company.
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If you buy a vehicle with finance, lets say spread over 4 years, you cannot put the whole cost of the vehicle against any single given tax years liability. You can only put what you have paid out in that year against your tax liability. Which'll be a quarter of the total cost if you spread the load over 4 years. You cannot include any interest paid on the loan.
If however you buy the vehicle outright in one hit, the full cost of vehicle paid off straight away you wont be paying interest anyway but you can put the full cost of the vehicle against any given tax year I believe, although it'll probably be better to spread the cost over a number of tax years to fully appreciate the potential tax savings.
There's a pretty simplified way to account for vans, systems etc.. and its the Annual Investment Allowance. I think its 25k per year, you can write off in one go. Their maybe a temporary rise on the limit of it to 250k, not that it'll apply to most of us. And its probably easier and more straighforward for anyone paying cash for older secondhad vans, and maybe systems..
I can't see anything in it to restrict you claiming, or rather using your allowance for a new van though even if it is on finance over four years or whatever. To my understanding you use the allowance and the payments for the next few years are your own worry out of your nett profits as you would have used up the allowances in the year of purchase.
It may well be worth asking about, potetially in could put you at a loss which can be carried over too. http://www.hmrc.gov.uk/capital-allowances/plant.htm
I think you have to be extremely cautious here. I'm not sure that buying a van will put our business into a loss situation that we could carry across to the next tax year, ie we spent more than we earnt, unless it was a business start up very shortly before the end of a tax year. In this case I agree with Matt - to maximise your tax advantage you will have to spread your capital assets over a period of time using write down allowances.
When its advantageous, you can choose to write off an asset under 1K (it was the year before last) in one hit. However, whatever you sell the van for will be liable for a 'balancing charge' on it.
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Off topic I know but..when buying a new van consider the VAT that is charged not only on the purchase price, but also on monthly repayments. If you are not VAT registered this can add a considerable amount to your total outlay which cannot be reclaimed.
Since when?
You can't reclaim VAT if you're not VAT registered.
You never pay VAT twice.
You only ever pay VAT on a van, (car as well) once. If you take out an ordinary Hire Purchase finance deal on a new van, you pay the basic price + VAT and any other taxes due.
The finance deal is then worked out on the total price paid (including VAT), less the deposit. Interest per annum is then added to the amount financed and the time period becomes the monthly instalment.
VAT is payable on all new vehicles. If the new owner is VAT registered he pays the full price including VAT and claims the VAT back at the end of the quarter. When he sells it the van is classed as VAT qualifying. This means the second owner has to pay the VAT unless he is also VAT registered. The dealer makes adjustment for the value of the trade-in depending on its VAT status. (A VAT qualifying van will be traded in at a price that excludes VAT so he is sure to make his profit on resale and not overprice the van for the next person who buys it that may not be VAT registered.
So an example. £8000.00 + VAT £1600.00 = £9600.00. You put down 25% deposit of £2400.00 = £7200.00 to be financed. £7200.00 x 5% flat pa interest over 3 years = £1080.00 interest. Total amount to pay over the period = £8280.00 divided by 36 months = £230.00 per month.
If you took out a leasing deal then the monthly rentals are calculated on the basic price and you get a monthly rental amount + VAT. In this case you will pay VAT over the period and not up front. If you took out a finance lease that didn't have a final balloon payment, then you would pay more VAT than had you financed. This is because you paid VAT on the interest and other leasing costs which you wouldn't have with HP. However, the VAT is charged from the lower base so there isn't that much difference.
So yes, you need to be a aware of the value of your purchase when buying a VAT qualifying van. As non VAT registered sole traders we could get caught out by a crafty salesman who disguises his OTR (on the road) price in a 'cheap' weekly instalment figure. In most cases the dealer will be focusing his sales efforts on a VAT registered sale. At 20% added VAT the van could easily be overpriced for a non VAT registered buyer, but still within price acceptance for a VAT registered company.
I stand corrected. VAT is payable either up front OR on your monthly instalments depending on your finance option.
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The interest on the finance will be tax deductable too
Not according to the HMRC. Spoke to them an hour, interest is not tax deductible.
There own website says it is, but as a legitimate loan and an interest payable certificate could be requested in an investigation.
http://www.hmrc.gov.uk/helpsheets/hs340.pdf
to buy equipment or machinery for use in your work for your employer,
or by a partnership (unless you have already deducted the interest as a
business expense) – provided that you, or the partnership, were entitled
to claim capital allowances on the item(s) in question. If the equipment
or machinery was used only partly for your employment, or only partly
for the partnership business, only the business proportion of the loan
interest or alternative finance payments qualifies for relief.
If you weren't allowed interest as a business expense, then you couldn't claim it at all. As far as I am aware, interest charged on credit cards and bank overdrafts aren't claimable although I might question the bank overdraft one as well.
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I think you have to be extremely cautious here. I'm not sure that buying a van will put our business into a loss situation that we could carry across to the next tax year, ie we spent more than we earnt, unless it was a business start up very shortly before the end of a tax year. In this case I agree with Matt - to maximise your tax advantage you will have to spread your capital assets over a period of time using write down allowances.
When its advantageous, you can choose to write off an asset under 1K (it was the year before last) in one hit. However, whatever you sell the van for will be liable for a 'balancing charge' on it.
Whether or not you end up in a loss situation obviously depends upon your gross profit minus your allowances, that bits nothing to be cautious about. Its pretty much black or white. To add further to what i said, and maybe strenghten what i said i found this........
http://www.hmrc.gov.uk/manuals/camanual/CA23084.htm
The important part(for AIA) is...........
The general rule is that qualifying expenditure is -
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the person incurring the expenditure owns the plant or machinery as a result of incurring the expenditure CA23010.
CA23010 (http://www.hmrc.gov.uk/manuals/camanual/CA23010.htm)
Expenditure on which PMAs are given is called qualifying expenditure.
These are the conditions that must be satisfied for expenditure to be qualifying expenditure for PMAs:
The expenditure is capital expenditure on the provision of plant or machinery wholly or partly for the purposes of a qualifying activity that the person incurring the expenditure carries on.
The person incurring the expenditure owns the plant or machinery as a result of incurring the expenditure.
I've no idea if you can carry forward any unused tax allowance, i'm not about to google it to find out. But i do know if the purchase of a van puts him in a nil profit scenario (or very small profit) then he will probably get tax credits. Aside from working tax credits, lots of companies in their own right get tax credits. That means they pay you for investing in your business. Cool !!
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I think you have to be extremely cautious here. I'm not sure that buying a van will put our business into a loss situation that we could carry across to the next tax year, ie we spent more than we earnt, unless it was a business start up very shortly before the end of a tax year. In this case I agree with Matt - to maximise your tax advantage you will have to spread your capital assets over a period of time using write down allowances.
When its advantageous, you can choose to write off an asset under 1K (it was the year before last) in one hit. However, whatever you sell the van for will be liable for a 'balancing charge' on it.
Whether or not you end up in a loss situation obviously depends upon your gross profit minus your allowances, that bits nothing to be cautious about. Its pretty much black or white. To add further to what i said, and maybe strenghten what i said i found this........
http://www.hmrc.gov.uk/manuals/camanual/CA23084.htm
The important part(for AIA) is...........
The general rule is that qualifying expenditure is -
.........................................................
the person incurring the expenditure owns the plant or machinery as a result of incurring the expenditure CA23010.
CA23010 (http://www.hmrc.gov.uk/manuals/camanual/CA23010.htm)
Expenditure on which PMAs are given is called qualifying expenditure.
These are the conditions that must be satisfied for expenditure to be qualifying expenditure for PMAs:
The expenditure is capital expenditure on the provision of plant or machinery wholly or partly for the purposes of a qualifying activity that the person incurring the expenditure carries on.
The person incurring the expenditure owns the plant or machinery as a result of incurring the expenditure.
I've no idea if you can carry forward any unused tax allowance, i'm not about to google it to find out. But i do know if the purchase of a van puts him in a nil profit scenario (or very small profit) then he will probably get tax credits. Aside from working tax credits, lots of companies in their own right get tax credits. That means they pay you for investing in your business. Cool !!
Yes, I agree with you.
We were told this year that 'left over' assets couldn't be carried over for the following tax year. So in our question with the receiver we spent £7000 on a van and equipment. The business started in Oct and the first tax year was completed in April. At the end of the 6 months the new business hadn't earned the k7 and the additional k7.5 to cover his personal allowance. They wouldn't allow this person to carry that 'loss' across to this tax year just ended.
This is why I have said that it may not be an advantage for us the use the full 'one hit' write down allowance (AIA), but rather spread it over a longer period and use the capital equipment write down allowance route.
Hence the reason for my comment about using the most advantageous way. If you are well established and bringing in a good monthly/annual income, then the AIA claim is the best route. Get everything you can now and worry about next year, next year.
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They wouldn't allow this person to carry that 'loss' across to this tax year just ended.
I understand the rest of your quote i've omitted, but i was just curious about this bit. Who is 'they' , HMRC or your accountant ?
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Best to have an accountant i offset mine all in one year to avoid a big tax bill but that was my personal choice , I could have spread it over a number of years if i wanted . Mike
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Best to have an accountant
+1
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They wouldn't allow this person to carry that 'loss' across to this tax year just ended.
I understand the rest of your quote i've omitted, but i was just curious about this bit. Who is 'they' , HMRC or your accountant ?
HMRC.
I also have the feeling that generally enquiry staff at HMRC either don't have a clue what they are talking about or load answers in HMRC's favour.
I know we can't carry across our personal allowance to the next tax year.
But in hindsight, I don't think that HMRC gave us 'options' to consider.
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Totally agree spruce after all HMRC enquiry staff are simply call centre workers IMHO never got a reasonable answer in the past so got myself an accountant to save making any mistakes . Mike
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HMRC.
I also have the feeling that generally enquiry staff at HMRC either don't have a clue what they are talking about or load answers in HMRC's favour.
I know we can't carry across our personal allowance to the next tax year.
But in hindsight, I don't think that HMRC gave us 'options' to consider.
Yes in general the call centre staff don't have a clue. I don't mean that in a derogatory way to them they are just paid to answer calls and direct you to the advice as best they can and i understand they aint paid enough to be fully qualified tax advisors in our favour. I wouldn't disaagree with the advice here to consult an accountant either, although that advice should not terminate a discusion here about it as with dealing with anything or anyone the more you can find out the more questions you can ask. I'd say find out as much info as you can and ask them the questions, accountants are of course just like window cleaners, plenty of crap ones about.
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Very true about accountants i had an accounting technician as my first one was not the greatest so got a chartered accountant and has been great .
Had a good few meetings and phone calls and he explains everything to me even if i dont ask just to ensure i understand the whole process . Mike
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Just thought i would update this thread .
In 2011 i did a part-ex deal for a 60 plate L200 and took out a personal loan for the difference in the purchase price .
For tax year 2010 to 2011 my accountant offset the capital investment of the vehicle against my tax liability thus avoiding me paying tax for that year .
I spoke to him the other day about putting loan repayments down as an expense , i use aworka so wanted to ensure i had entered everything needed for my profit and loss .
My Chartered accountant said i should put the loan repayments down in expenses but i can not claim back the loan reapayment's as an expense only the interest on the loan repayment's
He has a copy of the loan agreement so knows exactly what to put down .
So great avoided paying £0000 in tax and a interest free loan ;D ;D ;D . Mike
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Just thought i would update this thread .
In 2011 i did a part-ex deal for a 60 plate L200 and took out a personal loan for the difference in the purchase price .
So great avoided paying £0000 in tax and a interest free loan ;D ;D ;D . Mike
You still pay the interest, you are just able to offset it against your tax liability.
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Yes i know that mate was just joking around at least my tax liability is reduced it depends on how you view things overall i am a glass half full person
and not a glass half empty ;D ;D ;D . Mike