HOw can a black cab driver on UC expense the purchase of a new taxi?

seatbeltnoob

Asking for a friend here (no honestly). I'm not a black cab driver. Friend is a black cab driver with a disability so they work reduced hours and thus now on universal credit. Theyre dyslexic so I help them with their monthly claims.

Their black cab is going to be past it soon and will need to buy new one. 

Does UC Self employed allow capital allowances? They will probably get it on some hire purchase or finance where they pay little bits off at a time. Are the finance costs allowed to be expensed each month? 

I know some of the rules with motoring is quite murky. 

Northern_Wanderer

I could only find that milage can be claimed as an expense, not seen anything about the purchase of the vehicle or monthly repayments for finance.

https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/business-expenses-you-can-report-to-universal-credit-if-you-are-self-employed

Hopefully someone else will clarify.

and this: https://www.entitledto.co.uk/help/SelfEmployedExpensesClaimed looks like if you use actual expenses then acquisition can be included. Presumably whatever the finance amount is each month could be included.

NedS

I'm not an expert on this, so will happily defer to someone with greater / more current specialist knowledge.

seatbeltnoob said:

Asking for a friend here (no honestly). I'm not a black cab driver. Friend is a black cab driver with a disability so they work reduced hours and thus now on universal credit. Theyre dyslexic so I help them with their monthly claims.

Their black cab is going to be past it soon and will need to buy new one. 

Does UC Self employed allow capital allowances? They will probably get it on some hire purchase or finance where they pay little bits off at a time. Are the finance costs allowed to be expensed each month? 

I know some of the rules with motoring is quite murky. 

My understanding: As long as the vehicle has been specially modified for business use (e.g, a black cab), then you can claim that as a capital expense. But to do that, the business has to purchase it and incur that expense. If you pay £30k for your black cab, then you record a £30k expense in the AP in which you make the purchase.

Loan repayments are not a permitted expense on UC. You can claim up to a maximum of £41 per AP for any business loan interest, but you cannot claim for the capital repayment of the loan (because you've already recorded the £30k expense when you took out the loan and used it to purchased the black cab)

Once you have claimed as a capital business expense, you cannot then use simplified expenses for the vehicle (e.g, claim mileage rates), but must rather claim for the actual cost of fuel etc as evidenced by receipts. If you want to claim simplified expenses (e.g, mileage rates) then you cannot also claim the capital business expense.

Again, all covered in the guidance already linked, but again here for reference:

https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/business-expenses-you-can-report-to-universal-credit-if-you-are-self-employed

seatbeltnoob

NedS said:

I'm not an expert on this, so will happily defer to someone with greater / more current specialist knowledge.

seatbeltnoob said:

Asking for a friend here (no honestly). I'm not a black cab driver. Friend is a black cab driver with a disability so they work reduced hours and thus now on universal credit. Theyre dyslexic so I help them with their monthly claims.

Their black cab is going to be past it soon and will need to buy new one. 

Does UC Self employed allow capital allowances? They will probably get it on some hire purchase or finance where they pay little bits off at a time. Are the finance costs allowed to be expensed each month? 

I know some of the rules with motoring is quite murky. 

My understanding: As long as the vehicle has been specially modified for business use (e.g, a black cab), then you can claim that as a capital expense. But to do that, the business has to purchase it and incur that expense. If you pay £30k for your black cab, then you record a £30k expense in the AP in which you make the purchase.

Loan repayments are not a permitted expense on UC. You can claim up to a maximum of £41 per AP for any business loan interest, but you cannot claim for the capital repayment of the loan (because you've already recorded the £30k expense when you took out the loan and used it to purchased the black cab)

Once you have claimed as a capital business expense, you cannot then use simplified expenses for the vehicle (e.g, claim mileage rates), but must rather claim for the actual cost of fuel etc as evidenced by receipts. If you want to claim simplified expenses (e.g, mileage rates) then you cannot also claim the capital business expense.

Again, all covered in the guidance already linked, but again here for reference:

https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/business-expenses-you-can-report-to-universal-credit-if-you-are-self-employed

Lets assume cabbie decided to save up for a black cab while driving their previous one and has accumulated 30K and buys a 30K cab. So their profits that month is -27K. (3k profit normally but this month they spent 30K more). 

Under UC the losses cant be carried forward. (ltd co can through PAYE trick, not sole traders). 

So they have £27K loss in one month, they cant carry losses forward onto next month so essentially they are only allowed to claim capital expenses only up to one months worth of excess from the minimum income floor. Thats it. 

I dont think it's very well thought through. They allow capital expenditure on black cabs and other specially adapted vehicles. So if you buy it in installment/fiance is that a lease cost or capital expenditure cost? 

If he rents the black cab after his current [owned] one is no longer allowed to be used. is the rental cost allowable expense? 

Icequeen1

seatbeltnoob said:

NedS said:

I'm not an expert on this, so will happily defer to someone with greater / more current specialist knowledge.

seatbeltnoob said:

Asking for a friend here (no honestly). I'm not a black cab driver. Friend is a black cab driver with a disability so they work reduced hours and thus now on universal credit. Theyre dyslexic so I help them with their monthly claims.

Their black cab is going to be past it soon and will need to buy new one. 

Does UC Self employed allow capital allowances? They will probably get it on some hire purchase or finance where they pay little bits off at a time. Are the finance costs allowed to be expensed each month? 

I know some of the rules with motoring is quite murky. 

My understanding: As long as the vehicle has been specially modified for business use (e.g, a black cab), then you can claim that as a capital expense. But to do that, the business has to purchase it and incur that expense. If you pay £30k for your black cab, then you record a £30k expense in the AP in which you make the purchase.

Loan repayments are not a permitted expense on UC. You can claim up to a maximum of £41 per AP for any business loan interest, but you cannot claim for the capital repayment of the loan (because you've already recorded the £30k expense when you took out the loan and used it to purchased the black cab)

Once you have claimed as a capital business expense, you cannot then use simplified expenses for the vehicle (e.g, claim mileage rates), but must rather claim for the actual cost of fuel etc as evidenced by receipts. If you want to claim simplified expenses (e.g, mileage rates) then you cannot also claim the capital business expense.

Again, all covered in the guidance already linked, but again here for reference:

https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/business-expenses-you-can-report-to-universal-credit-if-you-are-self-employed

Lets assume cabbie decided to save up for a black cab while driving their previous one and has accumulated 30K and buys a 30K cab. So their profits that month is -27K. (3k profit normally but this month they spent 30K more). 

Under UC the losses cant be carried forward. (ltd co can through PAYE trick, not sole traders). 

So they have £27K loss in one month, they cant carry losses forward onto next month so essentially they are only allowed to claim capital expenses only up to one months worth of excess from the minimum income floor. Thats it. 

I dont think it's very well thought through. They allow capital expenditure on black cabs and other specially adapted vehicles. So if you buy it in installment/fiance is that a lease cost or capital expenditure cost? 

If he rents the black cab after his current [owned] one is no longer allowed to be used. is the rental cost allowable expense? 

You can carry forward self-employed losses (although there are some interactions with the minimum income floor)  - see midway down https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide

NedS

seatbeltnoob said:

NedS said:

I'm not an expert on this, so will happily defer to someone with greater / more current specialist knowledge.

seatbeltnoob said:

Asking for a friend here (no honestly). I'm not a black cab driver. Friend is a black cab driver with a disability so they work reduced hours and thus now on universal credit. Theyre dyslexic so I help them with their monthly claims.

Their black cab is going to be past it soon and will need to buy new one. 

Does UC Self employed allow capital allowances? They will probably get it on some hire purchase or finance where they pay little bits off at a time. Are the finance costs allowed to be expensed each month? 

I know some of the rules with motoring is quite murky. 

My understanding: As long as the vehicle has been specially modified for business use (e.g, a black cab), then you can claim that as a capital expense. But to do that, the business has to purchase it and incur that expense. If you pay £30k for your black cab, then you record a £30k expense in the AP in which you make the purchase.

Loan repayments are not a permitted expense on UC. You can claim up to a maximum of £41 per AP for any business loan interest, but you cannot claim for the capital repayment of the loan (because you've already recorded the £30k expense when you took out the loan and used it to purchased the black cab)

Once you have claimed as a capital business expense, you cannot then use simplified expenses for the vehicle (e.g, claim mileage rates), but must rather claim for the actual cost of fuel etc as evidenced by receipts. If you want to claim simplified expenses (e.g, mileage rates) then you cannot also claim the capital business expense.

Again, all covered in the guidance already linked, but again here for reference:

https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/business-expenses-you-can-report-to-universal-credit-if-you-are-self-employed

Lets assume cabbie decided to save up for a black cab while driving their previous one and has accumulated 30K and buys a 30K cab. So their profits that month is -27K. (3k profit normally but this month they spent 30K more). 

Under UC the losses cant be carried forward. (ltd co can through PAYE trick, not sole traders). 

So they have £27K loss in one month, they cant carry losses forward onto next month so essentially they are only allowed to claim capital expenses only up to one months worth of excess from the minimum income floor. Thats it. 

I dont think it's very well thought through. They allow capital expenditure on black cabs and other specially adapted vehicles. So if you buy it in installment/fiance is that a lease cost or capital expenditure cost? 

If he rents the black cab after his current [owned] one is no longer allowed to be used. is the rental cost allowable expense? 

As @icequeen1 says, losses do carry forward each month, but are overridden by the MIF once that is in place.

You are right that the system is not great for self-employed/small businesses, and part of me thinks that is by design in that they really do not want tax payers to be supporting people running their own business in the long term. There is support for the 12 month start up period, and after that the MIF largely limits support for most self-employed businesses. One could argue that if you are a black cab driver responsible for purchasing your own vehicle, you are either making sufficient for the business to be able to afford that expense or not. If you are not, then one has to ask if it is a viable business.

seatbeltnoob

As @icequeen1 says, losses do carry forward each month, but are overridden by the MIF once that is in place.

You are right that the system is not great for self-employed/small businesses, and part of me thinks that is by design in that they really do not want tax payers to be supporting people running their own business in the long term. There is support for the 12 month start up period, and after that the MIF largely limits support for most self-employed businesses. One could argue that if you are a black cab driver responsible for purchasing your own vehicle, you are either making sufficient for the business to be able to afford that expense or not. If you are not, then one has to ask if it is a viable business.

It's not giving any additional money to self employed claimants. It' just gives us more headache. I have an ecommerce business and I have wild swings in money and I have to manage. You have to try any sculpt your profits so you have nice constant amount. I have just over £3000 corporation tax owing, pretty long time from now. But the balance is owed to HMRC. And I use that debt to bring my profit down when I have unexpectedly high profits in some months. 

I also have some wholesalers that I can order items for restock in 1 day turnaround so on the last day of the assessment period I can see the profits are going to be for that assessment period and if I feel it's going to higher than normal I send an order using bank transfer so it's going to reduce the income and expenses as per UC rules. 

My income is always above MIF. But to avoid shocks and uneven UC award month to month I do try to smooth out the profits. If all the bills are paid together, there's a chance my profits will be below MIF and that will affect means for that month. That's why I pay the corporation tax down as and when I have spare funds and not just before the deadline like most people do. 

seatbeltnoob

Icequeen1 said:

seatbeltnoob said:

NedS said:

I'm not an expert on this, so will happily defer to someone with greater / more current specialist knowledge.

seatbeltnoob said:

Asking for a friend here (no honestly). I'm not a black cab driver. Friend is a black cab driver with a disability so they work reduced hours and thus now on universal credit. Theyre dyslexic so I help them with their monthly claims.

Their black cab is going to be past it soon and will need to buy new one. 

Does UC Self employed allow capital allowances? They will probably get it on some hire purchase or finance where they pay little bits off at a time. Are the finance costs allowed to be expensed each month? 

I know some of the rules with motoring is quite murky. 

My understanding: As long as the vehicle has been specially modified for business use (e.g, a black cab), then you can claim that as a capital expense. But to do that, the business has to purchase it and incur that expense. If you pay £30k for your black cab, then you record a £30k expense in the AP in which you make the purchase.

Loan repayments are not a permitted expense on UC. You can claim up to a maximum of £41 per AP for any business loan interest, but you cannot claim for the capital repayment of the loan (because you've already recorded the £30k expense when you took out the loan and used it to purchased the black cab)

Once you have claimed as a capital business expense, you cannot then use simplified expenses for the vehicle (e.g, claim mileage rates), but must rather claim for the actual cost of fuel etc as evidenced by receipts. If you want to claim simplified expenses (e.g, mileage rates) then you cannot also claim the capital business expense.

Again, all covered in the guidance already linked, but again here for reference:

https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/business-expenses-you-can-report-to-universal-credit-if-you-are-self-employed

Lets assume cabbie decided to save up for a black cab while driving their previous one and has accumulated 30K and buys a 30K cab. So their profits that month is -27K. (3k profit normally but this month they spent 30K more). 

Under UC the losses cant be carried forward. (ltd co can through PAYE trick, not sole traders). 

So they have £27K loss in one month, they cant carry losses forward onto next month so essentially they are only allowed to claim capital expenses only up to one months worth of excess from the minimum income floor. Thats it. 

I dont think it's very well thought through. They allow capital expenditure on black cabs and other specially adapted vehicles. So if you buy it in installment/fiance is that a lease cost or capital expenditure cost? 

If he rents the black cab after his current [owned] one is no longer allowed to be used. is the rental cost allowable expense? 

You can carry forward self-employed losses (although there are some interactions with the minimum income floor)  - see midway down https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide

Thanks, I forgot about that. I just knew that ltd co owners are able to to do it. ANd IMHO they are able to carry losses much better than sole traders.

Truth is, when MIF is applied this affects sole traders far different than Ltd co owners who pay themselves the MIF on PAYE. ltd co owners are able to fully absorn their losses from their profits. But sole trades are not. Difficult to explain but my calcs are below for illustration. 

Suppose this scenario

a ltd co SE UC claimant has a printing business and bought a UV sublimation printer for £10,000

     ---vs---

Sole trader SE UC claimant taxi driver whose bought a £10,000 black cab. 

lets assume both claimants carry out their trader and make profits of £2000 a month. But ltd co owner pays themselves £1650 through PAYE and leaves £350 in the business. 

Minimum income floor is £1650 for both. 

n.b. b/f is brought forward, c/f is carried forward

May

In the May assessment period both bought their respect assets. -£10,000 for assets +£2000 profits. 

Sole trader would have -£8000 losses c/f.

Ltd co owner would have -£10000 - £1650 [paye expense to themselves] +£2000 profits for the month=-£9650 losses carried forward

June

Sole trader has -£8000 losses b/f, earns £2000 profit in that month so losses carried forward is -£6000

ltd co owner -£9650 b/f, less £1650 paye + £2000 profits for the month =  -£9300 losses carried forward. 

July

Sole trader has -£6000 b/f , earns +£2000 profit so losses c/f -£4000

ltd co owner -£9300 b/f, less £1650 paye + £2000 profits for the month = losses c/f -£8950

----------------

Ltd co owner runs down their losses with profits in excess of the MIF (or PAYE wages) whichever is lower. In the example for simplicity I made the PAYE the same as MIF. 

If that trend was to continue for 2 more months (end of september), the sole trader would catch up with their losses, their losses to carry forward after would be £0. But the Ltd co owner will still have £8250.

That allows ltd co owner to have £8250 taper free profits from UC award. The taper on that would be £4537.50 less universal credit [which ltd co owner avoids]

The ability to ringfence your MIF as a ltd co is so advantageous, especially when you're not hitting your MIF, because the gap between your profits and MIF is turned into a loss to carry forward.