Declaring the sale of a business vehicle on tax return

Drexel_Spivey

I set up as a sole trader in 2018 and on filing my first year’s tax return, I claimed £12,170.00 capital allowance for the purchase of a business vehicle. My wife joined the business in 2022 and we registered a partnership and then both submitted separate SA tax returns for the tax year 2022-2023 as well as a partnership tax return. In December of 2023, I sold the previously mentioned vehicle for £3900. I now don’t have a clue how to proceed with declaring the income from this sale for self assessment purposes. Is it classed as profit or loss? Should it be included on the partnership return or only on my own self assessment form and under what section should it be declared?

Any help with this would be greatly appreciated.

Thanks in advance

Jeremy535897

If you claimed the full cost of the vehicle in 2018, you treat the total sale proceeds as partnership income for 2024/25. Your reference to capital allowances suggests you don't use the cash basis. You treat the proceeds as a receipt, so if you have a capital allowance pool brought forward you deduct it from that, and if it is nil or less than £3,900, the excess is treated as a balancing charge.

Drexel_Spivey

Hi, thanks for the reply. Not sure I understand all of it but that’s more about my lack of knowledge than the information you’ve provided. I do use cash basis. The bit about a capital allowance pool and balancing charges confuses me. In the first year of trading, gross earnings were only £6678.00 and I declared the purchase of the vehicle and haven’t mentioned it in any way since.

Am I simply adding the £3900 to the partnership’s gross earnings?

(And, yes, before anyone says it, I do think it’s perhaps time I employed the services of an accountant!)

Jeremy535897

You don't claim capital allowances on commercial vehicles if you use the cash basis. You simply deduct what you paid in the year from your trading profits as an expense. This may well have disadvantaged you, as it looks as if claiming the commercial vehicle in this way wasted personal allowances. But that's the past, and in this year you simply include the money received on the sale of the vehicle as a trading receipt.

Drexel_Spivey

Jeremy535897 said:

You don't claim capital allowances on commercial vehicles if you use the cash basis. You simply deduct what you paid in the year from your trading profits as an expense. This may well have disadvantaged you, as it looks as if claiming the commercial vehicle in this way wasted personal allowances. But that's the past, and in this year you simply include the money received on the sale of the vehicle as a trading receipt.

Thanks very much. Greatly appreciated and I think I've got the gist of it now.

Okay, so using cash basis for this return, what's the best way to include the purchase of a new business vehicle costing £7,450 as a legitimate expense?

Bookworm105

Drexel_Spivey said:

Okay, so using cash basis for this return, what's the best way to include the purchase of a new business vehicle costing £7,450 as a legitimate expense?

if you continue to use the cash basis you have no choice, it is declared as cost in full that reduces your partnership's profit.as a one off lump sum in that year 

the point Jeremy was making is that when it comes to your individual tax returns, based on your respective profit shares, if by claiming that lump sum to reduce partnership total profits, that then means your individual respective taxable profit needs to be more than 12,570 or you have wasted some of your personal allowance

if you do not use the cash basis  then the vehicle cost is spread over a number of years so your deduct a part of that cost each year, not the full lump sum in one go. That has the advantage of avoiding the wasted PA mentioned above.
However, you cannot chop and change the method each year. It you do not use the cash basis for a vehicle then you must consistently not use it for the entire life of the vehicle.

Drexel_Spivey

Bookworm105 said:

Drexel_Spivey said:

Okay, so using cash basis for this return, what's the best way to include the purchase of a new business vehicle costing £7,450 as a legitimate expense?

if you continue to use the cash basis you have no choice, it is declared as cost in full that reduces your partnership's profit.as a one off lump sum in that year 

the point Jeremy was making is that when it comes to your individual tax returns, based on your respective profit shares, if by claiming that lump sum to reduce partnership total profits, that then means your individual respective taxable profit needs to be more than 12,570 or you have wasted some of your personal allowance

if you do not use the cash basis  then the vehicle cost is spread over a number of years so your deduct a part of that cost each year, not the full lump sum in one go. That has the advantage of avoiding the wasted PA mentioned above.
However, you cannot chop and change the method each year. It you do not use the cash basis for a vehicle then you must consistently not use it for the entire life of the vehicle.

Gotcha. Thanks.

So, by continuing to use cash basis, I simply include the £7,450 paid out for the new vehicle to the "Expenses allowable for tax" figure this year and then make no further mention of it on subsequent returns?

Bookworm105

Drexel_Spivey said:

Gotcha. Thanks.

So, by continuing to use cash basis, I simply include the £7,450 paid out for the new vehicle to the "Expenses allowable for tax" figure this year and then make no further mention of it on subsequent returns?

yes
from 24/25 cash basis is the default anyway
Cash basis: Cash basis changes from the 2024 to 2025 tax year - GOV.UK

perhaps this may be of use:
Cash basis: How to record income and expenses - GOV.UK