Accounting for some transactions involving a van for combined, business and private use

Ajax67

Hi everyone

I am a sole proprietor. In the Tax Year 2021-2022, I acquired - on hire purchase - a van for combined, business and private use. Let’s say that the van ratio between business mileage and private mileage travelled in 2021-2022 has been 80:20.

I will be splitting the total expenditure of acquiring the van between AIA and Drawings in the above 80:20 ratio. Still in the same 80:20 ratio, I will be splitting - between Current Business Expenses and Drawings - also the Van Finance Interest accrued in the Tax Year 2021-2022.

Shall I use still the same 80:20 ratio for 2021-2022 (the Tax Year of the van acquisition) for splitting - between Current Business Expenses and Drawings - also the annual Van Finance Interest accrued in the following Tax Years 2022-2023, 2023-2024 etc? Or shall I use - for the above annual Van Finance Interest splitting purposes - the Tax Year-specific business mileage vs private mileage ratios (i.e. the ratios for 2022-2023, 2023-2024 etc) for each Tax Year after 2021-2022 instead?

Also, at some point after completely redeeming the Van Finance, I will be certainly selling the van. How will I be supposed to split the sale proceeds between Balancing Charge and (Capital) Injections then? Will I still have to use the 80:20 business mileage vs private mileage ratio for 2021-2022 (the Tax Year of van acquisition)? Or will I have to use the analogical business mileage vs private mileage ratio for the Tax Year of the van sale instead? Or will I even have to use the business mileage vs private mileage ratio for the whole several-year period of using the van?

Thank you very much in anticipation of any helpful answers!

Jeremy535897

You change the business: private ratio year by year unless it remains constant.

HMRC's view on balancing adjustments:

"Where an asset which has been used partly for non-business use is disposed of the amount the balancing adjustment (allowance or change) needs to be restricted by the average non business use over the life of the asset."

See: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/876377/Capital_2020.pdf
bottom of page 16.

If you are VAT registered, you can reclaim VAT on 100% of any repair costs (but not 100% of the original cost of the van itself or any improvements, or fuel).

Ajax67

Many thanks, @Jeremy535897. I guessed it would be again you to provide some knowledgeable insights.

Jeremy535897 said:

You change the business: private ratio year by year unless it remains constant.

Does this refer to the year-by-year splitting of annual Van Finance Interest between Current Business Expenses and Drawings? 

Thank you very much for your clarification!

Jeremy535897

Ajax67 said:

Many thanks, @Jeremy535897. I guessed it would be again you to provide some knowledgeable insights.

Jeremy535897 said:

You change the business: private ratio year by year unless it remains constant.

Does this refer to the year-by-year splitting of annual Van Finance Interest between Current Business Expenses and Drawings? 

Thank you very much for your clarification!

Yes. You work out the business and private proportions by keeping a note of mileage for business for each tax year, and noting the mileage at the beginning and end of the tax year (or accounting period if different).

If your business is based at your home, travel from home to a job is business mileage, unless you work at the same location on a regular basis.

Ajax67

Thank you very much once again, @Jeremy535897. I am sure you are a true asset not only to me but also to many other people on this forum and beyond!