Electric van purchase and tax allowances

JohnnyJet

I have recently bought a 3 year old second hand electric van to use in my business for the start of the new financial year.  I am a sole trader and currently I use the 45p travel allowance.  I was now wondering if it was worth changing so that I put the van purchase and expenses through the business.  If so, can I split the purchase cost over several years?  If so, is there a maximum?

I expect to use my van privately for about 20-30% of the time and most of my driving will be local, so my travel allowance will be nowhere near as high as the cost of the van, even if split over 4 years.

Is this worth me considering and are there any pitfalls that I need to consider?

Thanks

uknick

Capital allowance are what you need to read about;

Claim capital allowances: Overview - GOV.UK (www.gov.uk)

Depending on which ones you choose they can split the cost (or to be more precise, taxable deduction) over several years.

JohnnyJet

Thanks, so in the year of purchase am I able to decide how much AIA I claim?

For example:

First year
Van purchase cost £10,000
AIA claim £3,000

Second year
Remaining value £7,000
£7,000 x 18% (WDA) = £1,260

Third year
Remaining value £5,740
£5,740 x 18% (WDA) = 1033.20

Repeat until van fully written down.


Have I understood this correctly?

uknick

Something like that.  Are you only going to claim AIA of £3k in year 1 because that suits your profits profile?

When you dispose of the van you will need to do an adjustment to your accounts to take into account any profit or loss made on the disposal.

JohnnyJet

Yes It will be something around the 3k mark for the first year as I am a new start up.  As I understand it, there is no point me claiming more that the profit I make in the first year as It will just be a wasted tax allowance.

uknick

Yes and no, you can always carry forward losses to use against future profits.  It all depends on your personal requirements.

Some don't mind taking a big loss in one year to offset against future profits, possibly to turn them into losses, if it benefits their overall tax position.  Others want to show a profit each year so they can obtain finance; mortgage or new injection of cash into  the business.

This is what tax planning is all about.