Self Assessment Question - Capital Allowances

Avatar_2

Hi,

If I have a personal car that I bought 1 year ago for £15k and in Jan this year I went self employeed. I then started using this car for business, how can I claim capital allowances for it and at what rate and value?

reddevilled

Hi there

You need to find out a market value of the car when you started being self employed (try parkers website, or glasses guides for a valuation). The car is then "sold" into the business when you commenced trading.

Each year you can claim a writing down allowance of 25% (pro rated for shorter periods) up to a maximum of £3,000 pa (again pro rated). Off that writing down allowance you need to adjust for any private useage which won't be allowed for tax purposes.

Eg Suppose a MV of £12,000 when you commenced trade

Period 1.1.05 - 5.4.05 (first period)
WDA 12,000 x 25% x 3/12 (short period) = £750
Less : private use (say 50%) = (£375)
Allowable tax deduction = £375

Hope this helps,

Red

Pinkleylandii

Hi

Providing the car is used in your business then capital allowances can be claimed by you. The first thing that you need to do is to try to ascertain the market value of the car when you first brought it into your business. This can be obtained from a 'Glasses' guide or 'Parkers' guide but normally, individuals justtake a view on what the car is worth on the open market.

Once the value has been obtained, a claim at the rate of 25% can be claimed each tax year on a reducing balance basis. Therefore a car with a value of say £12,000 would enjoy a £3,000 claim in year 1, £2,250 in year 2, £1,687 in year 3 etc. You will notice that the annual claim reduces to 75% of the previous year's claim.

The maximum claim any any one tax year cannot exceed £3,000.

Remember that capital allowance reduce your taxable profit. They can be waived by the taxpayer if they do not need them, say because the taxable profit is covered by their individual personal allowances.

Finally, ther Inland Revenue require you to restrict your actual capital allowances claim by a private use %. If you trade from home, travelling to see your clients is business travel. However, if your trading address is elsewhere, say at an office or workshop, then the cost of travel between home and that normal workplace is classes is private travel.

Hope this helps, any queries let me know.

Thanks

Pinkleylandii

Avatar_2

Can I not write off the first year at 40% or 50% as a first year allowance? Then does year 2 (which starts 1st April) remain at 25% of the balance carried forward?

Also just to confuse it. A PC was also purchased so is this 100% allowance or 5/12 of 100% and 0% in the next year? or is the remainder 100% in the second year?

Richie(UK)

Hi Avatar,

FYAs are not generally available on cars. Have a look at the not section in this Revenue guidance.

When was the computer introduced into the business? (The 100% allowance for IT equipment finished on 31 March 2004)

reddevilled

Avatar wrote:

Can I not write off the first year at 40% or 50% as a first year allowance? Then does year 2 (which starts 1st April) remain at 25% of the balance carried forward?

Also just to confuse it. A PC was also purchased so is this 100% allowance or 5/12 of 100% and 0% in the next year? or is the remainder 100% in the second year?

Cars cannot get first year allowances, computers can however. Judging by when you started you business (jan 05) you will be able to claim 40% in the first period (this is not pro-rated as writing down allowances are). In the following years you will claim 25 % writing down allowance on the remaining tax written down value.