basic tax return question for Driving instructor

david0

Hi all,

I am a self employed Driving Instructor ( started this June )

I bought a car for £14000 for this purpose , and as I fitted dual controls I believe this car is now classed as "Plant and Machinery",
I "borrowed" the money from my personal flexible mortgage @ 3.9 % interest rate" (as I didn't want the regular leasing monthy costs as I knew it would be slow getting of the ground.)

I know I will probably need an accountant to sort out my first years accounts next April (although I really could do with doing them myself, as business is painfully slow at the moment and I will certainly be recording a big loss )

but in the mean time Im just wondering, (as i have read so many things on the web I'm now totally confused),

Can I deduct a percentage of my cars purchase price from my first years earnings ??
(the CO2 emissions are 118 g/km), would this be 40% of the purchase price in year 1 ?
and then year 2 ???
or is it all the full purchase price of the car deducted from earnings? ( probably not )

and will I ALSO be claiming for the interest on £14000 that it put back on my flexible mortgage.

also if the first year loss is so great can it be carried forward to further years

thank you very much indeed to any one who can answer my questions,:)
I do try to look for the answers on the .gov HRMC sites but it seem to complicated for me

can anyone reccomend a driving Instructor accountant who is not too expensive, I will be recording everything on spreadsheets that can be emailed.

thank you
David

ceeforcat

You can claim the full cost of the 'car' in the first year under the AIA, Obviously this could increase the loss substantially. You could carry the loss forward against future profits from that business although other options are available. I seem to have been saying this a lot lately but losses are a complicated area of taxation and good advice from an expert is needed.

zygurat789

The questions you ask tell me that you should go and see an accountant.
You could be in a complex situation as regards taxable income or losses and an accountant will know how to maximise the benefit to yourself.
You should claim the interest on the £14k loan along with all other expenses and capital allowances to arrive at your taxable income. You can choose not to claim the capital allowances if it would not benefit you ie you are not in a tax paying situation before claiming.
If you make a loss you may carry it back to previous years and receive tax refunds or carry it forward to reduce future profits if any but there are time limits.
See what I mean, consult someone who knows.

jimmo

Tricky one, this. One the one hand you are a new driving instructor, an industry quite infamous for people being sucked in to being signed up to buy brand new cars with dubious promises of riches to follow.

On the other hand you have correctly identified a car, with dual controls fitted, as being “Plant and machinery”. A small step for now but nevertheless, a significant step in understanding tax matters.

Also you haven’t fallen into the trap of taking up “commercial finance” for the car.

You seem to have lots of unproductive time on your hands at the moment and you need to judge for yourself whether you would be better spending that time promoting your business or learning about tax matters as they affect you.

Those of us who claim to know a thing about tax know that the correct use of losses can be complicated but its not exactly rocket science.

Ultimately, your success as a driving instructor will depend on how good you are as a driving instructor, not how good you are at handling your tax affairs.

david0

Thanks for that everyone, yes far too complicated for me, best left to a accountant, and jimmo good advice ill stick to promoting my business
Cheers

Pennywise

I'd recommend that you find an accountant sooner rather than later. Most will give a free initial consultation. There may be some start-up tax tricks you may miss if you leave it until after the tax year end.

Re your book-keeping, again, be guided by your accountant. Home made spreadsheets are often a nightmare for an accountant and cause more time to be spent, hence higher fees. Many accountants will provide you with simple book-keeping spreadsheets in the right format and others will provide you with free/cheap book-keeping software.

John_Pierpoint

There is a school of thought that says "use an accountant to get the complicated business of starting the ball rolling in the first year, then do it yourself in subsequent years". Buy in advice if you think you need it.

I had to take that course of action, when I inherited the responsibility for an interest in possession trust (great aunt as beneficiary), as the status quo would have resulted in "professional charges" bankrupting the trust.

As Jimmo says, it depends on how much effort you want to put into learning the ropes and trying to stay up to date with the annual changes in detail - such as "free" depreciation to encourage business people to go out and invest in new kit.

johnfash

Hi David

I'm an accountant and your scenario is not overly complicated, however it's something that's not easily advisable on a forum. I would recommend getting a professional advisor because there are complicated first year rules.

Some points I'd like you to note in case an advisor misses them though.

If your an unincorporated entity and you had employment income for the last 3 years, you can carry back a loss in your first year, to effectively give you a tax repayment. Bear in mind this may not be beneficial if you were paying basic rate last year but intend going into higher rates with your new business.

The purchase of the car will be plant and machinery. AIA is available so you can offset this against your profits, however you have to account for private usage and when you eventually sell the vehicle it may give rise to a tax charge. Again AIA is optional so you can claim either the full 14k or however much you need. Any unused will be carried forward.

You are able to claim the interest element of the loan against your earning.

Hope this helps.

JF