Sole Trader - How to account for new Van purchase

00ec25

glasgowdan wrote: »

Does that mean it's value reduces 18% each year and is considered an expense?

you really ought to read the links I posted above if you intend to do these accounting transactions yourself. You need to be a bit more advanced in your understanding before you attempt it given the nature of your question above

uknick

As 00ec25 says, if you want to do this yourself you need to get a better understanding of how capital allowances work.

Simplistically, they replace depreciation, i.e. what you write off to the P&L over the life of a capital item, in a set of accounts to give an adjusted profit for tax when working out the tax due.

For tax allowances purposes an asset's value does reduce by 18% each year when working out the allowance to put against that year's tax calculation. However, that can be a completely different figure to the value of the asset carried forward in the accounts.

For example, you buy an asset for £10k and give it a life of 5 years. Your accounts will show £2k per year as an expense for depreciation. But, the WDA will be £1,800 in the first year, £1,476 in the second year (18% of £8,200 [£10,000 less £1,800]) etc. At the end of the 1st year your accounting net value carried forward for the asset is £8,000, but the tax value carried forward is £8,200.

When you get rid of the asset you then have to make an adjustment to the tax calculation for any profit or loss you've made, e.g. if tax written down value is £4,000 and you sell it for £3,500 you have to adjust your tax calculation by a £500 loss.