Sole Trader - Purchasing new van

shell145

I currently have a van which I bought around 3 and a half years ago, which I never put on a tax return and I've been using mileage for tax.

I am about to replace my van - new van will be approx £16k including VAT (i'm not VAT registered). The sign writing is £2k

I believe I can claim this as a capital allowance. I have around £9k in my business account and I will be paying the remaining balance from my personal savings accounts
As I'm a sole trader, am I allowed to loan my business the remaining £7k and pay myself back monthly for x number of years, presumably using the 'writing down allowance'?

Jeremy535897

Are you using the cash basis or the accruals basis for tax? That will determine whether you claim capital allowances or just treat the van as an expense. Claiming as an expense offers no flexibility (for example if your profits after claiming for the van would mean you had no taxable income and wasted personal allowance). Whichever applies, you will need to work out what private use, if any, there will be (you can only claim for the business element).

As a sole trader, you can't lend to the business, as you can't lend to yourself. It doesn't matter that £9,000 comes from personal savings. You can only claim a writing down allowance in subsequent years if you use the accruals basis, and choose not to claim the full cost (business proportion) in the year of purchase.

If you have never claimed anything except business mileage at the approved rates for the old van, its sale proceeds will not be taxable.

shell145

I'm using cash basis, but I can change this at the start of the new tax year, couldn't I?

This current tax year I am looking at profits after expenses of around £37k, so no wasted personal allowance

We use my partners car outside of work, so literally just my van for work other than the tip run 1ce a year or so, though last time that was also taking some stuff from my rental property which comes under self employment profits

shell145

Jeremy535897 said:

As a sole trader, you can't lend to the business, as you can't lend to yourself. It doesn't matter that £9,000 comes from personal savings. You can only claim a writing down allowance in subsequent years if you use the accruals basis, and choose not to claim the full cost (business proportion) in the year of purchase.

What if my partner was lending the money to me, is this allowed?

Jeremy535897

Your partner can lend the business money. It doesn't affect a claim for the cost of a van. If you expect your profits to be £37,000 less £16,000 for the van, you may as well claim it all in the year of purchase anyway. There are various transitional rules to consider if you change from one accounting basis to another.

Income from rental property is not self employed profits, and if that means your real self employed profits are significantly lower than your estimate, what I say above may not be correct.

[Deleted User]

Jeremy535897 said:

Your partner can lend the business money. It doesn't affect a claim for the cost of a van. If you expect your profits to be £37,000 less £16,000 for the van, you may as well claim it all in the year of purchase anyway. There are various transitional rules to consider if you change from one accounting basis to another.

Income from rental property is not self employed profits, and if that means your real self employed profits are significantly lower than your estimate, what I say above may not be correct.

Which raises other issues. For example, if the op has been including rental income as part of his self-employed profits he has over paid Class 4 NIC equal to 9% of his rental surplus each year! That could be sizeable!

shell145

the figures given are from my business only, not any rental income (which just for further info only began July 2020 so not on any tax returns yet)

What if the money came our of a joint account in my name and my partners name?

Jeremy535897

It won't affect the claim for the van. You claim for the cost of it, and the extent to which the money to pay for it comes from your business account, your private account, your partner, or a joint account with your partner, is irrelevant. If your partner has a low income and pays no tax, it might be worth you paying a commercial rate of interest on any loan from them, but that is a separate matter.

shell145

Jeremy535897 said:

It won't affect the claim for the van. You claim for the cost of it, and the extent to which the money to pay for it comes from your business account, your private account, your partner, or a joint account with your partner, is irrelevant. If your partner has a low income and pays no tax, it might be worth you paying a commercial rate of interest on any loan from them, but that is a separate matter.

the money would affect it, because it would be a loan from my partner / our joint account with interest. hence then more money coming out as business expense the next 2 or 3 years, lowering my tax
My partner is a few grand under basic tax income limit

[Deleted User]

Once again, this will not affect any claim for the van. For a claim to capital allowances on this van it is completely irrelevant as to how it was financed. I presume that you realise that you cannot claim the loan repayments as an expense, just the interest although how this is quantified on a joint account, where you are a holder, is another issue. 

Jeremy535897

purdyoaten2 said:

Once again, this will not affect any claim for the van. For a claim to capital allowances on this van it is completely irrelevant as to how it was financed. I presume that you realise that you cannot claim the loan repayments as an expense, just the interest although how this is quantified on a joint account, where you are a holder, is another issue. 

If £9,000 comes from a joint account, I would treat £4,500 as a loan from the partner. The problem then is if the interest is paid into the joint account, half of it goes back to the borrower. As the interest that could be charged on this sort of amount is miniscule, on reflection I would not bother. Buy them a present instead.