Capital Allowance Query - Sole Trader Purchasing a Car

Bulunnge

As the subject line of this thread suggests I am a sole trader and want to ask about how to claim tax relief on the purchase of a vehicle.

I travel a fair bit for work and would say 60-70% of my car use is work related (if it makes any difference I work from home and travel to various places of work, no 'base of operations' save my own home).

I have the most audacious bad luck with buying cars and have already bought and sold/scrapped 3 within a 6 month period - don't even ask how/why, it makes me very sad just thinking about it! 

In terms of record keeping:
I keep my 'books' in a spreadsheet in which I record all income and expenses, and this includes the purchase of the numerous cars. It is also something I use to reconcile with my bank statements since I have a bank account for the business. However some of the money I spent on the cars came from other bank accounts, and so I also record items spent from 'cash', and my 'personal bank account'. I keep another column in the spreadsheet showing the value of any 'assets' I have, which is really just the car, I don't use any other equipment for my job, and it seems weird to me to show these 'assets' just appearing in that column, with no expenditure elsewhere in the spreadsheet to show where they came from, if that makes sense?

I've got it so the spreadsheet essentially works out what percentage of my vehicle use is a 'work' cost (based on the 60-70% work use, which I calculate based on a record of my mileage) but the spreadsheet is also calculating a proportion of the cost of the vehicles as a business expense because I'm recording the outlay for them in the same column as I'd record the cost of maintenance or fuel etc. The upshot of this is the spreadsheet shows I'm making a loss in each month that I bought a car, which obviously isn't reflective of my actual taxable income.

However, rather than write off the cost of the cars outright, i.e. just remove them from the calculation altogether, I'd like to know what proportion (if any) of the cost of the car(s) can become a tax deduction via the capital allowance system because I can probably re-jig the spreadsheet to calculate that.

For clarity; up to now I've been claiming vehicle expenses on a mileage basis, but I'm aware that can be changed upon the purchase of a different vehicle.

The cars I've bought are older and aren't low emission (over 50g/km CO2) etc - hence the fact they keep breaking down - it's a false economy to buy older cheaper cars I know. but I'm just an idiot when it comes to buying cars!

As a summary of the above, what I would like to know is how to properly record the purchase of a vehicle in my profit / loss spreadsheet (which also double as a banking balance sheet) whilst also working out what capital allowance I can claim on the vehicle, and if there's any support on how to work that out based on the above info I'd greatly appreciate being signposted.

I hope I've been clear with my question! Any help would be appreciated.

[Deleted User]

It’s a very long question with, I hope, a simple answer. 

I would remove the car purchases and sales from your spreadsheet as capital allowances are not a profit and loss item but a tax deduction. Aside from anything else, your profit and loss account should reflect the business, not your dealings in cars. 

So, you have a taxable profit of 20000 in 2022/23. That should exclude capital allowances but should include all expenditure on the car. In that year you purchase a second hand car which costs 10000. You can claim 18%, 1800 by way of capital allowances - the carry forward value is 8200. Your business proportion is 70% - you claim 70% of 1800 which is 1260. This goes in box 25 of the paper version of the tax return - see below - you can clearly see that this is separate from the profit and loss section. Your taxable profit is (20000 - 1260) 18740.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1062497/sa103s-2022.pdf

In 2023/24 you sell the car for 7000. The carry forward value was 8200 - you can claim 70% of the difference - 840. You purchase another car for 12000. The capital allowances are 2160 (9840 carried forward) and you claim 70% of that. 

Jeremy535897

I would guess that OP's cars are more likely to attract the "special rate" allowance of 6% a year rather than 18%, as the emissions will probably exceed 50g/km. Having said that, if you buy and sell a car in the same tax year, your allowance is always the business percentage of the loss.

[Deleted User]

Jeremy535897 said:

I would guess that OP's cars are more likely to attract the "special rate" allowance of 6% a year rather than 18%, as the emissions will probably exceed 50g/km. Having said that, if you buy and sell a car in the same tax year, your allowance is always the business percentage of the loss.

Very true. The op appears keen to understand the mechanics (😁) 

https://www.gov.uk/capital-allowances/business-cars