Why cant I claim.....

ferritt13

Hi,

First post on these forums so if I've posted in the wrong place please forgive me.

Could somebody tell me why if a get a loan (bank or company) to buy a new work van why I cant put these payments through my account books. Book if I buy a van on HP or lease I can? reason being is I cant really afford HP or leasing price. So a loan is better option for me. Also any tips on this as i lways thought anything bought for my business should be tax deductable. By the way I'm not VAT registered as I'm under the earning threshold.

cheers

PaulW922

You cannot put the payments through because the loan is a separate transaction in its own right, that could have been spent on anything. However you can claim the cost of the van against tax under the usual capital allowance rules, and that is in one hit too. Leasing is frequently more tax efficient which is why lots of businesses do it. Many agreements both lease and HP incorporate an allowance for your returning the vehicle at the end of the contract which can make a big difference to the monthly cost. It's worth shopping about. You do not have to get the lease/HP finance from the same place that you are buying the van from.

WHA

If the loan is for a qualifying business purpose, then you can claim the interest element of the loan, and as mentioned above, claim capital allowances on the van. There is really no difference in tax treatment whether you buy the van on hire purchase or by a bank loan.

If you buy the van on an operating lease (or more correctly rent it on such a lease) then the lease payments are allowable.

ferritt_2

so if I get a loan for say £5000 and use all of that to buy a work van I can put thw hole £5000 paid through my books even tho I've not actually earned that money yet?

cheers

PIppa

you can offset the loan interest against your profit and also claim capital allowances on the £5000 but you can't put £5000 through your books in the first year.

Your van is classed as an asset therefore the a proportionate amount of it (ie capital allowances) can be offset against your profit. The next year a proportion of the net balance (ie cost less first year's capital allowances) can be offset against that year's profit.

I hope that helps.

ferritt_2

PIppa wrote:

you can offset the loan interest against your profit and also claim capital allowances on the £5000 but you can't put £5000 through your books in the first year.

Your van is classed as an asset therefore the a proportionate amount of it (ie capital allowances) can be offset against your profit. The next year a proportion of the net balance (ie cost less first year's capital allowances) can be offset against that year's profit.

I hope that helps.

I dont understand this capital allowances. As my books are very simply, Income and outgoings (fuel, tools, work phone) I dont think i have ever included capital allowances. Please could I have more info on this.

cheers

pootle666

Capital Allowances are a way of getting tax relief on assets that have a life spanning more than 1 year. The government doesn't think it's fair that you get the whole cost against your profits in one go, so you spread it.

You will need to keep a little note of what you claim, so that you know what's left for next year, so keep that safe. If the asset is a van you get 50% of the cost in your first year (this is like a sort of bonus to encourage businesses to invest in assets, also this will probably go down to 40% after 5 April 2007). So on a £5,000 van you get £2,500 straight away, you can then have 25% on a reducing balance basis year on year, after that. So year 2, you've got £2,500 left, so you can claim 25% of that - £625, year 3 you'd have (£2,500 - £625) £1,875 & can claim 25% of that £469.

You claim this in a box on you you tax return, at the bottom of the detailed expenditure, on page SE2, or add it in with all your other expenses in the box on SE1, if you use the summary, rather than detail.

The only difficulty will come when you sell the van, as you have to account for any over or underclaim at this point, but when it comes to that, I'd get back on these pages & ask for detailed help.

One further note, those are the maximum amounts you can claim, you can claim less than these if you income is quite low & you would otherwise reduce your taxable income below your tax free personal allowance, which would be a waste.

Hope this helps a bit.

ferritt_2

Hi,

Finally bought a van (long search). I paid £5200 for it so how will go about putting this sum thru my books.

cheers