How to account for a Van bought outright, sole-trader

FraMil

Hello, 
I'm a sole trader and I bought my first van outright in Nov 2017 and have been using simplified expenses for it until I sold it in Feb 2020 and bought another van (a large Crafter LWB ,Euro6, 2016), outright too.
Now I'm preparing my tax return and, as I have done hardly any miles this year because of Covid, I'd like not to use simplified expenses but the actual cost of the van and fuel, insurance etc. . Also doing this way, next year while I do my 2020-2121 tax return, I could have more van allowance, as this year I basically haven't used the van at all (no miles) and I know that once one uses one way or the other (actual running cost as opposed to simplified expenses) one can't change between the two.
I have 2 questions:
-I do I account for the money I received for selling my first van ? Do I treat it as an income ? Do I have to subtract it from the cost of the second van ?
How do I account for the new van in 2019-2020 tax return if I don't want to use simplified expenses ? Can I spread the cost on 2-3 years (that would be ideal...)

Many thanks !
Francesco

Jeremy535897

When you say you use "simplified expenses", do you mean that you simply claim a mileage allowance (45p a mile for the first 10,000 miles, 25p thereafter, plus finance costs)  as described at https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles- ? If so, you will see that you can choose to claim actual expenses for one vehicle and simplified expenses for another. Regarding your existing van, as you did not claim the cost you don't have to pay tax on the proceeds.

The next important question is whether you use the cash basis or accruals basis in preparing your accounts. The answer to this question will determine the flexibility you have in deferring part of the claim for allowances on the cost of the new van. Rather than explain both, I suggest you tell us which basis you use. Some basic information is at:
https://www.gov.uk/capital-allowances

Finally, is the business basically your sole source of income?

FraMil

Hello Jeremy, 
many thanks for the prompt reply !
Yes, with "simplified expenses" I mean the miles' allowance. I've read that once I start using "miles" for a vehicle, I can't go back to actual expenses and viceversa, hence, having done nearly no miles this year because of Covid, I'd like to start with the "actual expenses" way for this Van bought in February 2020, to be able to have something to claim for the 2020-2021 tax return, if that makes sense ? I paid the new van about £14k, so it's not a small amount for me.

I use cash basis accounting and yes, the business is basically my sole source of income.

Many many thanks
Francesco

Jeremy535897

As I said in my previous post, you can start using actual expenses for the new vehicle. The cash basis is a lot less flexible than the accruals basis for claiming the cost, though, as it is just treated as an expense in the year of purchase. You could find that you only get tax relief on a part of the cost (if your taxable profit is less than your personal allowance), but pay tax on all the proceeds.

If you use the accruals basis, you can claim as much of the cost as you need in the year of purchase, and then claim a writing down allowance at 18% (reducing balance) in future years. You can switch from one basis to the other, but it can be complicated.

If you also use the van for private purposes, you can only claim the business proportion of the cost and expenses, whichever basis you use.

Pennywise

Jeremy535897 said:

If you also use the van for private purposes, you can only claim the business proportion of the cost and expenses, whichever basis you use.

That's a very important point.  You say you've hardly done any business miles in the 19/20 tax year, so unless every single mile driven in your new van was for business, you're deduction for its purchase will be restricted.  So, if say, you did only 50 business miles in those few weeks between puchase and tax year end, but you also did 50 private miles (helping a friend/relative move perhaps), then you'd only be allowed to claim 50% of the purchase price (if on simplified cash basis) and you'd never get relief for the other 50%, even if you then went on to do huge amounts of business miles in later years.

FraMil

Thank you for the replies !
Yes, I do use the van for private purposes but business miles are about 90% of the total, and that's what I usually account for when using simplified expenses for the van (like I did for the previous van).
Pennywise, exactly what you say. Let's assume I've done zero business miles Feb-March 2020 (because that's what I've done basically...unfortunatly), and zero business miles till now too, so for tax year 2020-2021 and will do so till April 2021.
After having paid the van £14k outright (that was a VERY bad timing to buy it but who could know?), there's no way I want to use simplified expenses (business miles counts) for it.
So, having established that I don't have to account for the proceeds from the selling of the old van, how do I account for this new one, wanting to use actual-costs ? Shall I use the £14k as a single expense for the year 2019-2020 or how much should I use ?
Many thanks, you're being super helpful !!
Francesco

FraMil

Pennywise said:

Jeremy535897 said:

If you also use the van for private purposes, you can only claim the business proportion of the cost and expenses, whichever basis you use.

That's a very important point.  You say you've hardly done any business miles in the 19/20 tax year, so unless every single mile driven in your new van was for business, you're deduction for its purchase will be restricted.  So, if say, you did only 50 business miles in those few weeks between puchase and tax year end, but you also did 50 private miles (helping a friend/relative move perhaps), then you'd only be allowed to claim 50% of the purchase price (if on simplified cash basis) and you'd never get relief for the other 50%, even if you then went on to do huge amounts of business miles in later years.

Sorry, completely misread this. Worryingly interesting. I'll need to look into this, but I'm pretty sure the proportion of miles from the period of purchase (actually 2nd of March, the day I paid the balance and drove off with it) to 5th April is still 90% business / 10% private..!

FraMil

So in conclusion, should I account for 90% of the whole purchase price (about £14k) in the tax return I'm compiling ?

Many thanks

Grumpy_chap

Except you said "zero business miles Feb-March 2020" so that would mean you can't account for 90% as business.

Do you have an Accountant?

Jeremy535897

You have to be careful here. Whereas mileage might be a reasonable guide to the business proportion when taken over a year, it is not the be all and end all. For example, a builder who has a car for private mileage might buy a van wholly for business in March, and try it out with a 5 mile trip to the shops. He then gets flu and does no work until the next tax year. That would not mean he can claim no allowances on the van. If it did, you can bet people with normally low business usage would buy a new vehicle a day or two before the year end and make sure it was used 100% for business in that period.

FraMil

Grumpy_chap said:

Except you said "zero business miles Feb-March 2020" so that would mean you can't account for 90% as business.

Do you have an Accountant?

Hi ! Yes, that was me getting an idea from the "worst case scenario"
I clearly don't have an accountant..! my accounting is very simple, it's just this one bit I need clarification about.