[dd]

If you want to reduce your tax bill instead of spending 20k or so every 3 years on top range van and system why not put it into a pension fund?

After 3 years you will be lucky to get back 10k on a 20k wfp set up.

20k put into a pension with a 7% annual return would be worth approx 40k in ten years and has the same tax advantages as your plan of replacing your van every 3 years.

Some people seem to be under the illusion that the tax man virtually pays for their new van - do the maths and you will see you actaully pay the vast majority yourself.

[wizard]

The tax man only pays what ever tax bracket you are in eg 22 % you pay the other 78%.

[Mike_G]

Cost of a van is a capital allowance and whilst you cannot claim 100% of the cost you can get very close to it. New van 20 k claim 25 % year one    £ 5000 leaving 15000
25% year  two    £ 3750 leaving 11250
25% year three  £2812.5 leaving 8437.5
25% year four    £2109.25 so total claimed from 20k outlay is £13671.75 so basically you pay for about a third of the van, I reckon thats pretty good.


As for the pension bit I am not sure about that either, are you saying that if I have a tax bill of say £3000 each year and I put an extra £3000 in a pension I wont pay any tax? If this pension thing is right I like the sound of it although there are drawbacks to pensions. When you retire you will need to buy an annuity ( not straight away but at some point) and say you have a pot of 75000k if you die after a couple of years that pot goes with you, where as if you had maybe isa's your wife, boyfriend or kids would get an inheritance.

I am by no ,means an expert on pensions so dont take my word for it, though I reckon a little more research needs to be done.

[daz1977]

i am sure you can only put 15% of the money you earn in to a pension,  a manager at a place i use to work at use to pay that as that was the most he could,  he also use to buy stamp every month as an investiment

[leapstallbuildings]

i am sure you can only put 15% of the money you earn in to a pension,  a manager at a place i use to work at use to pay that as that was the most he could,  he also use to buy stamp every month as an investiment

Depends on the agew of the pension holder.  The older you get, the higher the percentage you can put in and get the tax relief.
Also, what someone else was asking re tax bill.  The pension is treated as pretty much as an item that carries 100% tax relief in the year you bought it
e.g.  if your profit is say, £25,000, the tax bill on that will be about £3,800 (ignoring the extra NI element here for the sake of simplicity).  The £3,800 is calculated as follows:- £25k - £6k tax free allowance = £19k.  20% of £19k = £3,800.
Now if you paid £3k into a pension pot that year, it doesn't mean that your tax bill will only be £800.  It does mean that the £3k pension money will be subtracted from the £25k profit giving the following calculation:-
£22k profit - £6k tax free allowance = £16k.  20% tax on £16k = £3,200.

So the actual tax bill will be £3,200 rather than £3,800.

These are only approximations and NI has been left out for the sake of simplicity.

[daz1977]

r the rules different for self employed people and people who r employed

[luther1]

Cost of a van is a capital allowance and whilst you cannot claim 100% of the cost you can get very close to it. New van 20 k claim 25 % year one    £ 5000 leaving 15000
25% year  two    £ 3750 leaving 11250
25% year three  £2812.5 leaving 8437.5
25% year four    £2109.25 so total claimed from 20k outlay is £13671.75 so basically you pay for about a third of the van, I reckon thats pretty good.


As for the pension bit I am not sure about that either, are you saying that if I have a tax bill of say £3000 each year and I put an extra £3000 in a pension I wont pay any tax? If this pension thing is right I like the sound of it although there are drawbacks to pensions. When you retire you will need to buy an annuity ( not straight away but at some point) and say you have a pot of 75000k if you die after a couple of years that pot goes with you, where as if you had maybe isa's your wife, boyfriend or kids would get an inheritance.

I am by no ,means an expert on pensions so dont take my word for it, though I reckon a little more research needs to be done.

Probably the worst capital allowance calculations i have ever seen.

[gewindows]

Isnt there a big big difference between forking out for something from your pocket and having a 22% allowance taken off something.

I'll keep the figures simple:

Lets say you have a tax liability of £10000  and the taxable rate is 22% then you pay £2200 in tax and are left with £7800.00.

Now lets say you have just bought something for £2000. this is put against your tax. You therefore have a taxable liability with all other things being the same of £8000. That would mean your tax bill will this time be £1760, a difference of £440.


So on this occasion you will be left with £6,240 after tax and after paying for the item.

NOWHERE in all of that does the tax man pay for the item, you are worse off because of it, but have your item it just means your tax liability is reduced by the same percentage as whatever the item represents as a % of your tax liability.


In other words, putting something against tax just means your tax bill is likely to be reduced but you still have to pay for whatever it is you are buying. The tax man doesnt give vehicles away.

[daz1977]

this is why i do the ken dodds school of tax payment, bury it in the back yard and claim your account said to put ur money in to land lol

[Mike_G]

Thats how it used to be worked out I am sure of it, I have just spoken to my accountant and to be honest I have not got a clue how its worked out now but if Luther would like to show me it would be most helpful.

[dd]

Mike G according to your original calculation you only pay for a third of the van yourself. You seem to be confusing things becuase your calculations show only what you can set against your tax bill so it would be 20% to 40% less tax you would pay on 2/3 of purchase price.

Personal pensions now have a lifetime limit (which none of us is likely to exceed - around 1 million+ ) rather than an annual limit so you can pay as much in a year as you choose irrespective of earnings.

Not advising people to pay into a pension but personally would rather increase my pension contributions as opposed to buying a new van every 3 years.

With pension you get tax relief at 20% or 40% depending on your income.

[Mike_G]

dd it  seems the rules have changed and surprise surprise its even more confusing than before yep I know you can claim tax relief on pensions and that good because I do. Here is what I have found regarding capital allowances if any of you understand it please let me know!


You can claim capital allowances on expenditure on plant and machinery (P&M), which includes vans, cars, machines, scaffolding, equipment such as ladders, tools and computers, furniture, and many other items you might use in your business.

It can also include expenditure on items of P&M you used privately before using them in your business and items that you only partly use for business purposes.

You cannot claim for things you buy or sell as your trade - these are claimed as business expenses. If you buy on hire purchase, you can claim a capital allowance on the original cost of the item but the interest and other charges count as business expenses.

Most businesses have an Annual Investment Allowance (AIA) of £50,000 for P&M. This allows them to write off 100 per cent of the cost of the qualifying plant and machinery, up to a value of £50,000, against their taxable profits in a standard accounting period.



Now does this mean if my tax bill equals 10k and I buy a van for 10k my bill is £0? I think the old way was much easier!

[dd]

If you set 10k capital allowance against your tax bill it simply means you do not pay tax on the 10k - so you would save £2000 or £4000 on your tax bill depending on whether you pay tax at 20% or 40%.

[luther1]

£20,000 van. 1st year capital allowance is 40%(might be 50%,but me old man isn't in his office).
40% of 20k is 8k. You then have your 22%  taken off of that. Unless of course you pay 40% tax. £1760 off of you tax bill. 2nd year is 25%. So remainding 12k you will get a deduction of 25%, ie 3k and pay 22% of that. £660. 25% allowance the 3rd year too. I have a Transporter sat outside which was well over £22,000, so i did have a few sums done before i bought it!

[Mike_G]

Ah now we are getting there. Whats with the 100 % write off bit then, do you know?

dd you seem to be a man in the know it seems that the rules changed in April 2008 so were my previous working correct? I am pretty certain that you used to be able to claim 25% of the value each year!

[Mike_G]

£20,000 van. 1st year capital allowance is 40%(might be 50%,but me old man isn't in his office).
40% of 20k is 8k. You then have your 22%  taken off of that. Unless of course you pay 40% tax. £1760 off of you tax bill. 2nd year is 25%. So remainding 12k you will get a deduction of 25%, ie 3k and pay 22% of that. £660. 25% allowance the 3rd year too. I have a Transporter sat outside which was well over £22,000, so i did have a few sums done before i bought it!

Luther, thats almost what my accountant said I am sure pre 2008 the rules were different. You would take off the capital allowance from your taxbill total and that way it was worth doing. Whats the point now I think dd's pension is a much better idea.

[luther1]

Your 25% was right Mike but only for the 2nd year onwards,the 1st year allowance is more.
The thing that most people forget is that we don't take the whole  25% (or whatever it is) off of our tax bill, just 22% of the 25%. Should have put a  on my original post as i genuinely wasn't being rude. Just been bit in arse in my earlier years by thinking that if i spent loads then i'd pay no tax!

[Mike_G]

Damn those taxmen Luther. Oh well I get it now but how does the 100% write down work then ? 

[luther1]

I'm sure that the 100% 1st year capital allowance came out last April,so we won't benefit from that until next year,which will be good because i bought a new Transporter at Xmas and had a summer house built in my garden to house my static system,so 30k expenditure for me already.

[Mike_G]

Right the Luther you are now the officila Clean It Up tax advisor I look forward to this 100% rule being explained as soon as you have sussed it