Making the purchase of a company vehicle pay?

sabreone0

Hello there, I run a small gardening business that turns over approx £150k pa. Our 8 year old tipping truck keeps breaking and is proving very expensive to keep on the road.

With the help of a bank loan I would loke to purchase a new truck. This truck would cost £30k to purchase and I would like to depreciate this vehicle over a 5 year period through our books.

I understand that the interest on the loan can be offset against our tax, however wondered if there was any other tax benefits that would make an investment of this size more viable.

I wondered if the depreciated value year on year could be offset against our profits?
Your help and advise are really appreciated

ceeforcat

While you may wish to depreciate this truck over five years in your accounts,which is entirely reasonable, the tax rules are slghtly different. You can claim the cost up to £100000 as a total write of against taxable profits in one year, regardless of the depreciation claimed in the accounts - this is known as the Annual Investment Allowance. Act quickly though as I believe that this will be reduced to £25000 from April.

Regshoe

As ceerforcat says the AIA is decreasing to £25k from April 2012, how much AIA you qualify for would depend on when you draw accounts up to and when exactly you purchase the truck (though if you buy it soon I think you should easily be able to claim the full amount).

Even if you buy it after the AIA reduction the excess over £30k can be slowly claimed by Write Down Allowances in future year (the tax equivalent of depreciation).

Further guidance on the AIA change:
http://www.hmrc.gov.uk/budget-updates/autumn-tax/tiin1315.pdf


The other thing to remember is that the interest on the loan will be an allowable expense for the business.

Do you have an accountant? If so this is the sort of thing you would want to take to them.

sabreone0

Thank you for your help. It is much appreciated.
I have done further research and the the new truck would cost approx 20k to buy. Less than I thought!! We turn over 150k pa with about 30k taxable profit. We are a limited company.
Please could you advise if this purchase would be cost effective over a 5 year plan.
My understanding is limited but the Annual investment allowance would give us 100% tax allowance now. How does this work? Would we pay no corporation tax this year?
We could also depreciate the vehicle over the term and claim interest relief on the bank loan (we would borrow 100% on the truck and so our loan would cost around £400 a month over 5 yrs)
How does depreciation work? can you claim tax relief against the 18% or thereabouts that the vehicle loses each year?
Would this purchase pay from a tax offsetting standpoint. On a month to month basis would the loan repayments be offset on the whole against our tax bill or would we be better just to muddle on with our old vehicle and keep paying the repair bills?
Sorry for all the questions.

Pennywise

Profit £30k less AIA on Van £20k gives taxable profit of £10k.

Buying a van for £20k will reduce your corporation tax in the year of purchase by £4k, i.e. 20% corporation tax rate.

So it will cost you £16k after tax allowances.

Same with interest - if it costs say £1k p.a. in interest, you get CT relief at 20%, i.e. £200 meaning the true cost of the interest is only £800.

Once you have claimed the full AIA, then you don't get any more tax relief on it's purchase price - i.e. no further tax relief on depreciation.

Don't forget that you only get tax relief on its costs, i.e. 20%, so it will always cost you 80% of the amount you pay. The cost of the vehicle doesn't come off your tax bill, you only get tax relief on it at normal CT rates, i.e. 20%.