sole trader , van finance , how much is offset against my tax liability ?

Mr_Poves

Hi , I've tried looking on the official website , but can't find anything relevant regarding buying a van and off setting tax .
I'm a sole trader , not vat registered , If I buy a van and put £950 cash , £1390 part ex for my current van , then repay £190 ish per month (total interest about £1200 ) over 36 month's ,
where do I stand with putting it through my books ?
Please only comment if you can help , I know I should have an accountant , but it's only this that's causing me issues , the rest of my books are simple , thanks in advance for any help .

WHA

It depends. Are you using the simplified cash basis or not? Have you bought it outright by hire purchase or bank loan or have you leased it? Give us the detail and we can help answer your question.

Mr_Poves

Hi , thanks for the reply , Yes I work on cash basis in my books , it's on hp through a finance provider , £6950 + vat @ £1390 = £8340 total .
My part ex is valued at £1390 so writing the vat off .
I'm also chucking £950 cash in to bring the loan down to £6k .
I think the flat interest rate is around 4.50% , the apr is around 13% .
monthly repayments around £197 over a term of 35 , with a final payment of just under £400 .
So around £1200 interest , sorry for the rough guesses but those are from memory without consulting the quote.
Thanks again for the help , it really is appreciated .

Pennywise

Mr_Poves wrote: »

Hi , thanks for the reply , Yes I work on cash basis in my books , it's on hp through a finance provider , £6950 + vat @ £1390 = £8340 total .
My part ex is valued at £1390 so writing the vat off .
I'm also chucking £950 cash in to bring the loan down to £6k .
I think the flat interest rate is around 4.50% , the apr is around 13% .
monthly repayments around £197 over a term of 35 , with a final payment of just under £400 .
So around £1200 interest , sorry for the rough guesses but those are from memory without consulting the quote.
Thanks again for the help , it really is appreciated .

The £1390 is added to your income in the year of sale and you'll be pay on it.

The £8340 is an expense in the year of purchase and you'll get tax relief on it.

Your annual interest charge is limited to £500 under the general rule for interest on the cash basis, so not all of it may be claimable if you have any other interest claims on loans or other finance agreements etc.

All the above assumes 100% business miles for the van. If not, then you need to apportion for business use only.

Depending on your trading profits, you may well be better to opt back to normal accounting rather than the cash basis, especially if the £8340 claim puts your profits down below the personal allowance as you'd be wasting a proportion of your tax allowance. Under normal accounting, you could choose not to claim all of the £8340.

Mr_Poves

Pennywise , thankyou so much for that information ,
it's much appreciated .
So would I be correct in thinking if I used the traditional accounting method for this tax year , I could then divide the £8340 by 3 yrs , which is the term I will be paying for the van , so in essence claim £2780 this year and so on for the next following 2 tax yrs ?

WHA

Mr_Poves wrote: »

Pennywise , thankyou so much for that information ,
it's much appreciated .
So would I be correct in thinking if I used the traditional accounting method for this tax year , I could then divide the £8340 by 3 yrs , which is the term I will be paying for the van , so in essence claim £2780 this year and so on for the next following 2 tax yrs ?

No, capital allowances don't work like that, there is no choice. IN future years you can only claim 18% on the reducing balance until you sell it or stop using it for the business. But, yes the interest on the HP will be claimed each year it is paid.

Mr_Poves

Thanks WHA , I'm in a bit of a conundrum then as my profit this year will be around £15000 after expenses , which I get a certain amount of wtc and a very very small amount of housing benefit as I'm the sole breadwinner .
If I put the full £8340 against my profit , this will half my expected earnings for this year .
I was hoping to be free of any support from tax credits or hb after april this year , however if I do offset the £8340 , my actual profit will entitle me to full wtc and hb for the last year which would mean a massive underpayment would of occurred on their behalf .
How would I deal with that ?
as I was quite happy plodding along as I am ?