Self Assessment Capital Allowance for car

goodraw

I'm a sole trader and I bought a second hand car low co2 emmisions, last  tax year 21-22. I use cash basis to do my self-assessment. I'm using the car for personal use 50% of the time.
Questions:
Should I use accruel basis accounting, instead of cash basis,or will it work out the same?
Is writing down allowance applicable for both methods?

Jeremy535897

Most capital expenditure on business assets, if you use the cash basis, is deducted in the year of purchase, which may be disadvantageous if you waste part of your personal allowance. Cars are different though. Whether you use the cash basis or the accruals basis, you claim capital allowances as appropriate for the car involved, on 50% of the cost in your case (although you can use a flat rate claim instead at standard rates). See paragraph 20 of:
https://www.gov.uk/government/publications/how-to-calculate-your-taxable-profits-hs222-self-assessment-helpsheet/hs222-how-to-calculate-your-taxable-profits-2022#allowable-business-expenses-cash-basis-capital-expenditure

goodraw

Hi Jeremy and thanks for your reply.
As I understand it, I can claim 18% of half the cost of the car: £17.3 K total so £8.65K. So on those figures £1557 can be reduced from the profits. Would that be how it works.
Also, is writing down allowance applicable here?

Jeremy535897

The 18% is a writing down allowance. However, if the car's carbon emissions are too high, the writing down allowance is reduced to 6%. Conversely, electric cars may attract a first year allowance. See:
https://www.gov.uk/capital-allowances/business-cars

goodraw

Tried to understand the gov links,more confused than before I started!

After personal allowance,the taxable income is approx. £13K. 20% tax on that comes to £2600.
Car is second-hand hybrid,but low emmisions ( as defined by gov). Halve of total cost of car is £8.65K ( as 50% is for private use).
Do I claim the above amount in the first year?
If so, what happens to the differance £8650- £2600= £6050. Is that carried  forward to next year? 
Or does one lose the right to claim any more?

[Deleted User]

You are way off the mark - you do not get £8650 tax back on the car. If you are using the cash basis the £8650 is treated as an expense - just as if you spent £8650 on staff costs, for example. 

Using your figures, and assuming you have yet to claim £8650, the taxable income (after personal allowances) would be £4350 with tax due of £870. Your tax has been reduced by £1730 which is 20% of £8650.

Bear in mind than, when you come to sell that vehicle, 50% of the proceeds needs to be included as income.

Jeremy535897

purdyoaten2 said:

You are way off the mark - you do not get £8650 tax back on the car. If you are using the cash basis the £8650 is treated as an expense - just as if you spent £8650 on staff costs, for example. 

Using your figures, and assuming you have yet to claim £8650, the taxable income (after personal allowances) would be £4350 with tax due of £870. Your tax has been reduced by £1730 which is 20% of £8650.

Bear in mind than, when you come to sell that vehicle, 50% of the proceeds needs to be included as income.

The cash basis does not treat cars as an expense. You have to claim either the standard simplified expenses mileage rate instead of overall expenses (including the cost), or claim capital allowances plus actual running costs (the business proportion of fuel, repairs, insurance etc). For a low emissions hybrid (emissions equal to or under 50g/km), the writing down allowance will be 18% of the 50% business proportion so 18% of £8,650. That is £1,557 in the year of purchase, so 20% of that is a tax saving of £311.40, and you will also save class 4 NIC at a further 9%, being £140.13.

[Deleted User]

Jeremy535897 said:

purdyoaten2 said:

You are way off the mark - you do not get £8650 tax back on the car. If you are using the cash basis the £8650 is treated as an expense - just as if you spent £8650 on staff costs, for example. 

Using your figures, and assuming you have yet to claim £8650, the taxable income (after personal allowances) would be £4350 with tax due of £870. Your tax has been reduced by £1730 which is 20% of £8650.

Bear in mind than, when you come to sell that vehicle, 50% of the proceeds needs to be included as income.

The cash basis does not treat cars as an expense. You have to claim either the standard simplified expenses mileage rate instead of overall expenses (including the cost), or claim capital allowances plus actual running costs (the business proportion of fuel, repairs, insurance etc). For a low emissions hybrid (emissions equal to or under 50g/km), the writing down allowance will be 18% of the 50% business proportion so 18% of £8,650. That is £1,557 in the year of purchase, so 20% of that is a tax saving of £311.40, and you will also save class 4 NIC at a further 9%, being £140.13.

Good stuff - Jeremy. So far removed from this now👎

Nevertheless- it does appear that the op is expecting to receive a tax rebate of £8650.

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

[Deleted User] said:

You are way off the mark - you do not get £8650 tax back on the car. If you are using the cash basis the £8650 is treated as an expense - just as if you spent £8650 on staff costs, for example. 

Using your figures, and assuming you have yet to claim £8650, the taxable income (after personal allowances) would be £4350 with tax due of £870. Your tax has been reduced by £1730 which is 20% of £8650.

Bear in mind than, when you come to sell that vehicle, 50% of the proceeds needs to be included as income.

The cash basis does not treat cars as an expense. You have to claim either the standard simplified expenses mileage rate instead of overall expenses (including the cost), or claim capital allowances plus actual running costs (the business proportion of fuel, repairs, insurance etc). For a low emissions hybrid (emissions equal to or under 50g/km), the writing down allowance will be 18% of the 50% business proportion so 18% of £8,650. That is £1,557 in the year of purchase, so 20% of that is a tax saving of £311.40, and you will also save class 4 NIC at a further 9%, being £140.13.

Good stuff - Jeremy. So far removed from this now👎

Nevertheless- it does appear that the op is expecting to receive a tax rebate of £8650.

You may be right, which is why I set out the figures for tax and class 4 NIC. I remember the good old days when you could get 106% of the cost of a van back in some cases, because of the large tax credit disregard for increased income.

goodraw

[Deleted User] said:

Jeremy535897 said:

[Deleted User] said:

You are way off the mark - you do not get £8650 tax back on the car. If you are using the cash basis the £8650 is treated as an expense - just as if you spent £8650 on staff costs, for example. 

Using your figures, and assuming you have yet to claim £8650, the taxable income (after personal allowances) would be £4350 with tax due of £870. Your tax has been reduced by £1730 which is 20% of £8650.

Bear in mind than, when you come to sell that vehicle, 50% of the proceeds needs to be included as income.

The cash basis does not treat cars as an expense. You have to claim either the standard simplified expenses mileage rate instead of overall expenses (including the cost), or claim capital allowances plus actual running costs (the business proportion of fuel, repairs, insurance etc). For a low emissions hybrid (emissions equal to or under 50g/km), the writing down allowance will be 18% of the 50% business proportion so 18% of £8,650. That is £1,557 in the year of purchase, so 20% of that is a tax saving of £311.40, and you will also save class 4 NIC at a further 9%, being £140.13.

Good stuff - Jeremy. So far removed from this now👎

Nevertheless- it does appear that the op is expecting to receive a tax rebate of £8650.

@pur@"[Deleted User]"  
If you go back and re-read what I actually wrote,you'll see that I wasn't expecting to receive tax rebate of £8650.00.

What I was doing was trying to do  understand complex rules relating to tax as a layman. Rules which you have misunderstood and  misinterpeted.

Jeremy535897

One point I did not address was later years. In the year of purchase, the claim is £1,557. The following year it is £8,650 - £1,557 = £7,093 at 18% = £1,277, and so on (what is known as the reducing balance basis) until the year of sale. In the year of sale, you compare the sale price to the balance brought forward (business proportions) and the difference is either a balancing charge or balancing allowance. If in year 3 the vehicle was sold for £10,000, the balancing allowance would be £7,093 - £1,277, the balance brought forward (£5,816), less half the sale price of £5,000 giving a balancing allowance of £816.