SELF ASSESSMENT & CAPITAL ALLOWANCES

biddy2101

Hello.

I deal with my husbands accounts.  11 years ago he became a self employed window fitter, who sub-contracts, and 6 months into being self employed he bought a new van.  At that time we had Accountants doing his yearly accounts.  I used to prepare all the details, they checked & submitted his tax return - they obviously used traditional accounting.  Once we had finished paying for the van (4 years) - we then deciced that we would do the tax return ourselves going forward & all was well with my calculations, my simple excel spreadsheets and I used cash basis - very easy.  My husband is not VAT registered. 

Forward 10 years and my husband bought a new van in the tax year 2021-2022, and I have done all the figures/calculations and I'm ready to submit his self assessment.  I have been doing some homework on Capital allowances but I am thoroughly confused.

The van (diesel) was purchased in June 2021, a large deposit paid, bought on a 4 year 0% apr credit agreement from Ford - it is 100% used solely for work and the payments started in August 2021.

Things I think I know:  to claim the full tax benefit for the van - we need to submit his accounts using traditional accounting method & ditch cash basis, therefore we have to declare the van as a captial allowance; I have to declare his other exependiture; 

Things I don't know:  Capital allowances - I attended a HMRC webinar the other day about Capital Allowances for the Self-employed but it really wasn't helpful.  Which capital allowance the van falls into.  We were given scenarios (but it was mainly figures & methods, however no context).  Having looked at the document that came with the webinar and HMRC website - I am still unclear.

I think I need to claim it as 100% first year allowance - as it is a van that we won't be replacing annually, therefore I don't think its an "annual investment allowance".  And I only claim what we have paid so far in the financial year 21-22.

Questions:  Am I on the right track?  Is it financially viable to change the accounting method & claim for the van via a capital allowance?  Is the tax relief better by claiming the van as a 100% FYA?  Or do I just submitt the accounts as a cash basis and include the van as just an expense? 

Hopeful & confused of Hillingdon.  Thank you

Jeremy535897

You need to be more specific about how the vehicle was financed. Is it a hire purchase contract, or a lease, or something else?

The annual investment allowance (AIA) is only described as "annual" because there is an upper annual limit of expenditure that can qualify. This is currently £1 million. A van purchased on HP qualifies for AIA in full (if used wholly for business) in the year it is first brought into use, assuming the traditional accounting method is used. Under the cash basis, relief is only given as and when payments are made.

Which method is best will depend on your husband's income in the year the van is bought, and how it is financed.

biddy2101

Jeremy535897 said:

You need to be more specific about how the vehicle was financed. Is it a hire purchase contract, or a lease, or something else?

The annual investment allowance (AIA) is only described as "annual" because there is an upper annual limit of expenditure that can qualify. This is currently £1 million. A van purchased on HP qualifies for AIA in full (if used wholly for business) in the year it is first brought into use, assuming the traditional accounting method is used. Under the cash basis, relief is only given as and when payments are made.

Which method is best will depend on your husband's income in the year the van is bought, and how it is financed.

The van was purchased on a 0% finance agreement - payable over 48 months. 
We keep the vehicle/own the van at the end of credit agreement.
Annual income for my husband is just under £ 50k per annum 

Jeremy535897

It sounds like hire purchase, if the van will belong to you at the end of the finance period, but it would be best to check the detailed paperwork. If that is the case, given the level of your husband's income, it would mean tax relief in year one rather than spread over four years if you leave the cash basis. This can cause transitional issues to arise. See:
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim70070 and the following sections.