Sole Trader - New Van - Tax relief?
Discussion
Willhire89 said:
What tax relief would I get on the purchase in FY 14/15?
None 
Tax year 2014/15 ended on 5 April 2015.
I assume you will buy this van before 5 April 2016.
If you do, you will obtain Capital Allowances in tax year 2015/16.
Items such as vans (and other commercial vehicles) are legible for the 100% Annual Investment Allowance (AIA) which effectively means that the full purchase price of the vehicle can be offset against the business profits in the year of purchase.
You can claim the AIA if you
buy the vehicle outright
buy it using a bank loan
buy it using an HP
You CANNOT claim AIA if you lease or rent the vehicle.
Don't mix up Capital Allowances with Depreciation. Capital Allowances relate to tax relief. Deprecioation relates to teh accounts.
Generally not.
You really do have to read the small print regarding ultimate ownership when looking at these agreements.
If the ownership of the asset DOES NOT pass to the hirer's ownership with the final payment, then the agreement is a lease/rent type agreement and the business cannot make the Capital Allowance claim on that asset. This is because the asset remains the property of the hiring/lease company for the entire duration of the lease and it is THEY who will be making the Capital Allowance claims.
This does not mean that the business cannot get tax relief on the asset. It's just that they don't get the tax relief using the capital allowance system.
You really do have to read the small print regarding ultimate ownership when looking at these agreements.
If the ownership of the asset DOES NOT pass to the hirer's ownership with the final payment, then the agreement is a lease/rent type agreement and the business cannot make the Capital Allowance claim on that asset. This is because the asset remains the property of the hiring/lease company for the entire duration of the lease and it is THEY who will be making the Capital Allowance claims.
This does not mean that the business cannot get tax relief on the asset. It's just that they don't get the tax relief using the capital allowance system.
Ok
I'm possibly mixing accountancy rules with tax rules but Finance leases have to be capitalised "in the books" whereas operating leases are just a charge to the P&L.
Effectively finance leases are just another form of HP so (because of that) I think AIA would be allowable but its a moot point.
I'm possibly mixing accountancy rules with tax rules but Finance leases have to be capitalised "in the books" whereas operating leases are just a charge to the P&L.
Effectively finance leases are just another form of HP so (because of that) I think AIA would be allowable but its a moot point.
Countdown said:
Ok
I'm possibly mixing accountancy rules with tax rules but Finance leases have to be capitalised "in the books" whereas operating leases are just a charge to the P&L.
Effectively finance leases are just another form of HP so (because of that) I think AIA would be allowable but its a moot point.
It causes massive confusion.I'm possibly mixing accountancy rules with tax rules but Finance leases have to be capitalised "in the books" whereas operating leases are just a charge to the P&L.
Effectively finance leases are just another form of HP so (because of that) I think AIA would be allowable but its a moot point.
Legally, a Lease Finance is different to a Hire Purchase.
Under Lease Finance, the leasee does not acquire any rights of possession at any time throughout the lease period. When the lease is completed, the leasee MAY have a further option to purchase the asset from the leasing company - but that is after the original agreement has ended and an extra payment will be required. Because the leasing company has full ownership and possession rights throughout the leasing period, HMRC does not allow the leasee to make any Capital Allowance claims on the asset
With a Hire Purchase, the hiree also does not own the asset during the hiring period. But they will automatically own the asset once the final hiring installment has been paid. Therefore, completing the hire payments in their entirety is enough to obtain full ownership. Also, during the hiring period, the hiree gradually obtains more rights of possession of the asset - which limits the way in which the hiring company can repossess the asset if the hiree defaults.
Because of these special rules of rights of possession and final ownership that are part of a Hire Purchase arrangment, HMRC DOES allow the hiree to claim the Capital Allowances on the asset.
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