Paying back a loan for a business vehicle early

[No_Idea]

Am I right in thinking I'm perfectly fine paying back chunks of a loan used for a business vehicle early and declaring it as a business expense?

Just for an example.. Loan monthly payments is £200 which are declared as an expense. I earn £20,000 after business expenses paying the £200 per month plus whatever other expenses I have. I pay £7500 off the loan over the tax year which takes me under the £12,500 tax allowance.

Would this look dodgy with HMRC?

It's actually a personal loan which I used for a business vehicle and I can make overpayments to save interest with no charges to reduce to term time but the monthly payments remain the same until paid in full.

[foliedouce]

My understanding is you can only reclaim the interest element of the loan as an expense, but an accountant will be along shortly to clarify that I’m sure.

[No_Idea]

foliedouce said:

My understanding is you can only reclaim the interest element of the loan as an expense, but an accountant will be along shortly to clarify that I’m sure.

I hope that's not the case, I'm using the whole repaying as an expense, which it is, a vehicle solely used for my business and nothing else. Then of course there's insurance, tax, MOT. repairs again also regarded as expenses.

Any accountants on here to answer my relatively simple question?

Thanks

[Mr Overheads]

I don't think it sounds simple at all.

You have taken out a personal loan NOT secured on the Car.
Did you personally or did the company buy the car? I think it's the former based on your post.
Hence so far the Limited Company has nothing to do with the car.

You then put through say £200 a month (presuming loan repayment is £200 for this example) as an expense item on the company books which is essentially £200 of wages/drawings/dividends extracted from the company, doesn't matter what it's for, and will simply be taxed as income and depending whether it's put through as wages or as dividends will set the tax treatment for the company/you.

[mmm-five]

You'll need to clarify some things, but probably want the advice of a professional that you've paid, rather that some randoms from PH.

• Where's the loan from?
• If it's a company vehicle, why was it bought with a personal loan?
• Why are you claiming the repayments from the company?
• What's going to happen to the car once it's paid off?

You're claiming £200/month expenses (where I believe you should be claiming just the mileage if it's a personally-owned car), which and your gross after this expense is £20kpa.

Then you want to use £7.5k (unclear from where) to pay off more of the loan (again, unclear where this loan is from) to reduce your gross to a nominal £12.5kpa so that you can avoid/evade tax?

Sounds very dodgy to me.

[No_Idea]

Figures above are as an example only, but yes my thinking was pay a chunk off the loan to reduce the term time and save money in interest which would take me closer to the tax threshold, but completely understand this would look dodgy so not the best idea - just wanted to check it was legal thats all but will just carry on as normal.

I'm a sole trader, not a limited company. It's a personal loan used to buy a business vehicle (van) and it's solely used for work so surely I can use the repayments as " outgoings"?

Edited by No_Idea on Wednesday 22 July 16:34

[KevinCamaroSS]

Sounds dodgy to me too. You need to talk to your accountant, or, if you do not have one, you need to get one pronto.

[sgrimshaw]

No_Idea said:

Figures above are as an example only, but yes my thinking was pay a chunk off the loan to reduce the term time and save money in interest which would take me closer to the tax threshold, but completely understand this would look dodgy so not the best idea - just wanted to check it was legal thats all but will just carry on as normal.

I'm a sole trader, not a limited company. It's a personal loan used to buy a business vehicle (van) and it's solely used for work so surely I can use the repayments as " outgoings"?

You're way off here.

As noted already you need to get an accountant ASAP.

[Ham_and_Jam]

The simple answer here is ask your accountant, or get one.

What seems simple from your perspective often isn’t, because to answer it correctly would need much more information or insight into your business affairs.

However, as a sole trader your tax affairs and accounting is treated very differently to a ltd company.

As a sole trader there is no legal difference between you and your company, likewise no such thing as a ‘company car’, no BIK. However what is very important is that you separate ANY personal and business miles using the vehicle and only claim pro rata for any expenses as a % of the business miles accrued.

I am not an accountant, but I believe you should be putting your vehicle through as a capital allowance, which have specific rules set by HMRC to how they are applied. I’m not sure you are compliant the way you are suggesting you are accounting at the moment.

The good news, as a sole trader, if you haven’t submitted your end of year books to HMRC yet, they can be sorted and easily shuffled around to make them compliant. Go see an accountant, explain your situation and let them sort it.

Edited by Ham_and_Jam on Wednesday 29th July 10:31

Edited by Ham_and_Jam on Wednesday 29th July 11:48