Annual investment Allowance..........

leveller2911

I run a small Joinery buisness and I'm in a partnership with my wife who does the admin and we are not a Ltd company.

We are currently looking into buying a new van, which will be a panel van and buying outright so no lease etc.
Am I correct in thinking If we buy the van before the end of the financial year we can offset 100% of the cost of the van against our tax liability under the "Annual Investment Allowance" in the current financial year?..........

purdyoaten

Correct - so long as the van is 100% used for business.

Pennywise

leveller2911 wrote: »

Am I correct in thinking If we buy the van before the end of the financial year we can offset 100% of the cost of the van against our tax liability under the "Annual Investment Allowance" in the current financial year?..........

No, not against your tax liability. It's 100% against your taxable profits. Assuming you make average profits, you'll get 29% tax/nic relief so if it costs £10,000, your tax/nic bill will be £2,900 less, meaning the van actually "cost" you £7,100 after tax relief.

purdyoaten

Pennywise wrote: »

No, not against your tax liability. It's 100% against your taxable profits. Assuming you make average profits, you'll get 29% tax/nic relief so if it costs £10,000, your tax/nic bill will be £2,900 less, meaning the van actually "cost" you £7,100 after tax relief.

Well spotted - didn't notice that!

leveller2911

Pennywise wrote: »

No, not against your tax liability. It's 100% against your taxable profits. Assuming you make average profits, you'll get 29% tax/nic relief so if it costs £10,000, your tax/nic bill will be £2,900 less, meaning the van actually "cost" you £7,100 after tax relief.

Can you clarify this Pennywise?.

As an example : Turnover £80k , nett profit (after business costs of £35k ,not including van) is £45k. The van would be £15k so is our taxable profit £45k less £15k = taxable profit of £30k.

If so I understand the 100% AIA........

Or would it be £45k (net profit) less 29% of £15k(van) = £4,350-00

So net profit for tax purposes would be £45k - £4,350-00 = £40,650-00 (taxable profit)

If so where does the 100% AIA come from?.

leveller2911

purdyoaten wrote: »

Correct - so long as the van is 100% used for business.

100% for business use as we have a car for private use...

purdyoaten

leveller2911 wrote: »

Can you clarify this Pennywise?.

As an example : Turnover £80k , nett profit (after business costs of £35k ,not including van) is £45k. The van would be £15k so is our taxable profit £45k less £15k = taxable profit of £30k.

If so I understand the 100% AIA........

Or would it be £45k (net profit) less 29% of £15k(van) = £4,350-00

So net profit for tax purposes would be £45k - £4,350-00 = £40,650-00 (taxable profit)

If so where does the 100% AIA come from?.

Your first option is correct. The second option is considerably wide of the mark.

zygurat789

leveller2911 wrote: »

Can you clarify this Pennywise?.

As an example : Turnover £80k , nett profit (after business costs of £35k ,not including van) is £45k. The van would be £15k so is our taxable profit £45k less £15k = taxable profit of £30k.

If so I understand the 100% AIA........

Or would it be £45k (net profit) less 29% of £15k(van) = £4,350-00

So net profit for tax purposes would be £45k - £4,350-00 = £40,650-00 (taxable profit)

If so where does the 100% AIA come from?.

Your taxanle profits are reduced by £15k. But for the van you would have paid 20% tax and 9% class4 ni on these profits. You have spent £15k on a van and reduced your tax bill bu £4,350