Capital allowance re Vehicle on ceasing trading

MikeFloutier

My wife retires today. She was a self-employed private hire driver and as such owns a vehicle which is used for the business.

Each year there is a capital allowance entry relating to the car in her self-assessment account, i.e.. 20% of the business use portion of the written down value.

Bearing in mind that the car is NOT going to be sold, my question is - "How do we treat it in her final year's accounts"?

Pennywise

You need to show it in the accounts as if it were sold at open market value, because that's effecting what you're doing, i.e. the business "selling it" to your wife. That may throw up a balancing allowance or a balancing charge in the tax return. Also note that you can't claim the usual writing down capital allowance in the final period of trading - showing it as a disposal ensures tax relief/charge on the difference between tax written down value and current open market value.

MikeFloutier

Many thanks Penny!

MikeFloutier

Pennywise wrote: »

You need to show it in the accounts as if it were sold at open market value, because that's effecting what you're doing, i.e. the business "selling it" to your wife. That may throw up a balancing allowance or a balancing charge in the tax return. Also note that you can't claim the usual writing down capital allowance in the final period of trading - showing it as a disposal ensures tax relief/charge on the difference between tax written down value and current open market value.

Sorry, just to clarify so I don't get this back to front can I just run the actual figures past you please.

The written down value of the car - Not sure if this should be the purchase price less a) the write down figure, or b) the business use portion of the write down figure. Anyway, these are £6272 and £7285 respectively.

The current estimated private resale value is £5,800.

I'm not sure if this leads to an increased capital allowance figure (i.e. more relief) OR less relief (in this case having the effect of swelling the Net Profit figure.

Sorry if I'm being a bit thick but we've not retired before, well not from self-employment anyway.

[Deleted User]

You state that you claim 20% of the business use proportion of the car - I have never seen it calculated like this. Usually it is the business use proportion of the capital allowances, in this case 20%, on the vehicle written down value.

So, to me, it is the business use proportion of the capital allowances not the capital allowances on the business proportion.

For example, if the car cost £10000 and the correct rate for capital allowances is indeed 20%, the capital allowances would be £2000 and the carry forward value would be £8000. You then would claim the business proportion of the £2000. You do not take a business proportion of the £10000 and claim capital allowances on that.

So I am a little confused. In my example, if the car had a value of, say, £7500 at retirement you would calculate a balancing allowance of £500. You claim the business proportion of this.

Look at examples 13 and 14 of the attached.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323611/hs252.pdf

I would say that it is some time since I specialised in business taxation and I know pennywise is currently practising. Capital Allowances on cars are unrecognisable from ten years ago - but i still think that I am correct on this.

MikeFloutier

Sorry to be confusing.

Basically, in my case, the resale value of the car is less than the written down value in the books.

Does this mean I can claim MORE or LESS?

[Deleted User]

If it is less you CLAIM the difference.

If it is more you ADD the difference to your profit.

May I ask, respectfully, are you talking about capital allowances or depreciation? The 20% rate is not common.

MikeFloutier

Many thanks.

I didn't realise how out of date my tax knowledge was. Just been reading up and see that the annual relief figures for both my cars should be 8% not 20% - will have to do some adjusting.

[Deleted User]

MikeFloutier wrote: »

Many thanks.

I didn't realise how out of date my tax knowledge was. Just been reading up and see that the annual relief figures for both my cars should be 8% not 20% - will have to do some adjusting.

Yes - it is not so long ago that it was simply a case of claiming 25% on a reducing balance (max £3000). Now it is a complete minefield - another step towards tax simplification :rotfl: