Hp van payments in personal name not tax deductible?
Discussion
Any business advise -
My LTD company has four vans on hire purchase, the agreements are in my name personally but vans registered in LTD company and for the companies use.
My accountant has said because the hp payments are in my name personally all these payments have gone into my directors loan account.
This has left me with a £25k directors loan account payable.
Is this correct?
Any advise appreciated as this is expensive for me.
My LTD company has four vans on hire purchase, the agreements are in my name personally but vans registered in LTD company and for the companies use.
My accountant has said because the hp payments are in my name personally all these payments have gone into my directors loan account.
This has left me with a £25k directors loan account payable.
Is this correct?
Any advise appreciated as this is expensive for me.
Eric Mc said:
How was the vehicle entered into the company balance sheet when the corresponding liability (the HP loan) is not in the balance sheet?
I agree with what you are implying. I said if I’m liable for all the payments then they are my vans - but then accountant stated they are on the balance sheet so not mine.
She is saying as I’ve signed end of year accounts off nothing can be done. And she won’t answer the phone - it’s not been ideal. Implying can sort out in next return.
Found another accountant who basically says, amend accounts on ch and can contra the directors loan payment / hp payments so no directors loan of £25k. And it can be clearly shown the vans are for business use etc
For the accounts to reflect some sort of logic, the asset must be "balanced" by the liability that was generated in order to acquire the vehicle.
I would like to see the accounting entries she used to get the vehicle into the company's fixed assets but at the same time manage not to make any accounting entry for the related liability.
Ask her what the relevant debit and credit entries are.
If the car had been acquired correctly through the company and the HP agreement had been properly allocated to the company, the entries would gave been:
Debit Fixed Assets with the cost of the vehicle
Credit HP Account heading in Current/Long Term liabilities with the HP amount borrowed
There would also have been additional entries to account for the overall costs associated with the interest charges payable on the HP repayments.
I would like to see the accounting entries she used to get the vehicle into the company's fixed assets but at the same time manage not to make any accounting entry for the related liability.
Ask her what the relevant debit and credit entries are.
If the car had been acquired correctly through the company and the HP agreement had been properly allocated to the company, the entries would gave been:
Debit Fixed Assets with the cost of the vehicle
Credit HP Account heading in Current/Long Term liabilities with the HP amount borrowed
There would also have been additional entries to account for the overall costs associated with the interest charges payable on the HP repayments.
nct001 said:
Eric Mc said:
How was the vehicle entered into the company balance sheet when the corresponding liability (the HP loan) is not in the balance sheet?
I agree with what you are implying. I said if I’m liable for all the payments then they are my vans - but then accountant stated they are on the balance sheet so not mine.
She is saying as I’ve signed end of year accounts off nothing can be done. And she won’t answer the phone - it’s not been ideal. Implying can sort out in next return.
Found another accountant who basically says, amend accounts on ch and can contra the directors loan payment / hp payments so no directors loan of £25k. And it can be clearly shown the vans are for business use etc
Burwood said:
OP, to get the vans onto the company books they have to 'buy' them from you (sort that later). In the interim you could amend accounts if you sign up a lease to the company for van use. It's perfectly legit-they are used by the business. Essentially the entry would be to Credit Dir loan and Debit Lease expenses in PNL. Your accountant (new one?) seems to be suggesting just that. Ask the accountant about Capital Allowance treatment when the company buys the vans from you.
Before you do this, as the assets are being financed through a HP company, you may need to clear any such arrangement with them first. Most HP companies will not allow you to transfer title of goods to another entity without their permission.It's all semantics. The point being putting lease payments through a directors loan account is plain wrong (4 vans) as obviously company tools.
He could capitalise the lease obligation (from himself to his company) or simply charge X per month to his company. The previous accountant needs sacking. New accountant appears to see the substance of the arrangement and is suggesting a work around which is their job
edited after a quick check. HMRC agrees 100%

He could capitalise the lease obligation (from himself to his company) or simply charge X per month to his company. The previous accountant needs sacking. New accountant appears to see the substance of the arrangement and is suggesting a work around which is their job
edited after a quick check. HMRC agrees 100%

Edited by Burwood on Monday 31st January 13:06
I'm not talking about HMRC thinks - or even the accounting entries required.
"Substance over form" is all fine, but if the HP company doesn't like what you've done, you might have a problem.
My advice would be to check with them first. If they are comfortable with it, then by all means account for it in the company.
The important thing is that there exists, in the balance sheet, recognition that the asset has a corresponding liability associated with it. If the liability isn't the balance due to the HP company, then it will be the balance owed to the director who has, in effect, "loaned" a private asset to his company.
As regards the payments to the HP company, if the company is actually paying these out of the company bank account, then the company is effectively being used by the director to pay off a personal debt - so the full repayments need to be made to the directors' loan account. The company has no obligation in law (or in any other interpretation) to pay any of the finance charges to the HP company so there should be no deduction in the company profit and loss account for the HP charges.
The director might be able to claim personal tax relief for the interest through his personal self assessment tax return (which might be actually more beneficial, especially if he is a higher rate taxpayer).
The director can, if he wants to, raise an interest charge of his own to his company in respect of the personal loan he has made to the company. Interest received would be subject to Income Tax however.
"Substance over form" is all fine, but if the HP company doesn't like what you've done, you might have a problem.
My advice would be to check with them first. If they are comfortable with it, then by all means account for it in the company.
The important thing is that there exists, in the balance sheet, recognition that the asset has a corresponding liability associated with it. If the liability isn't the balance due to the HP company, then it will be the balance owed to the director who has, in effect, "loaned" a private asset to his company.
As regards the payments to the HP company, if the company is actually paying these out of the company bank account, then the company is effectively being used by the director to pay off a personal debt - so the full repayments need to be made to the directors' loan account. The company has no obligation in law (or in any other interpretation) to pay any of the finance charges to the HP company so there should be no deduction in the company profit and loss account for the HP charges.
The director might be able to claim personal tax relief for the interest through his personal self assessment tax return (which might be actually more beneficial, especially if he is a higher rate taxpayer).
The director can, if he wants to, raise an interest charge of his own to his company in respect of the personal loan he has made to the company. Interest received would be subject to Income Tax however.
Abdul Abulbul Amir said:
Title of assets still sits with the funder. HP is a purchase agreement, not a lease.
The way this has been done risks the VAT treatment...how does the company recover the VAT when the HP agreement is with an individual.
ETA
Also, capital allowances.
Excellent points. HMRC rules (whether Income Tax, Corporation Tax or VAT) tend to follow the legal position rather than the "substance over form" position.The way this has been done risks the VAT treatment...how does the company recover the VAT when the HP agreement is with an individual.
ETA
Also, capital allowances.
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