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PostPosted: Wed Mar 04, 2009 2:45 pm 
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Location: North Devon
Hi
It's my 1st year as an owner driver and I'm trying to establish how much I can claim back for the car in my self assessment. It's a 2nd hand vehicle which I purchased and registered as a hackney vehicle. I'd appreciate if anyone has the information to hand. I've tried to ring the tax office and the lines are always busy.
regards
Dave


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PostPosted: Wed Mar 04, 2009 3:59 pm 
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My accountant allows 25% of the purchase price for the first year. So if the car cost £10,000 the first year is obviously £2,500. The second year is 25% of the written down value which is now £7,500. So the second years allowance would be £1,875. The 25% is used every year.
I hope this helps.

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Grandad,
old fart with no heart


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PostPosted: Wed Mar 04, 2009 4:01 pm 
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I think its Usually 25% of its Purchase Value...you can do that for 4 years and then you cant claim for it anymore as youve had 100%..you might knock off a small percentage if some of your Milage is for Personal use.....Thats how my Accountant explains it anyway...


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PostPosted: Wed Mar 04, 2009 4:13 pm 
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OK thanks. A local driver I spoke to said he thought it was 50% then 25% and I read somewhere about a capital something or other allowance of 50K that you could claim back 100%. so was just clueless :)


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PostPosted: Mon Mar 23, 2009 4:37 pm 
Ignore what some ppl tell you, 50% is what he may write down but if he gets investigated this will result in him having to pay more tax to bring it back inline.

The proper way is you are allowed the depreciation on the cars value per year, and you can also claim some of the interest payments on it if it's financed, if you are doing your own books rather than using an accountant I would suggest a write down of 20% in both year 1 & 2 and then balance it on what you sell it for in year 3 assuming you keep a car for this time period and not longer, hth.


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PostPosted: Mon Mar 23, 2009 11:14 pm 
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grandad wrote:
My accountant allows 25% of the purchase price for the first year. So if the car cost £10,000 the first year is obviously £2,500. The second year is 25% of the written down value which is now £7,500. So the second years allowance would be £1,875. The 25% is used every year.
I hope this helps.


I think you're closest to the mark Grandad, and depreciation for accounting purposes has to be distinguished from the taxation treatment (called capital allowances), and I think the others may be talking about accounting provisions.

One thing to bear in mind is that capital allowances on motor cars are limited to £3,000 a year, so if you buy an expensive motor then you won't get the full 25% initially, but you will get it eventually - it just takes a bit longer. At least that's the way my accountant did it last time round, but I think there may be a question mark over whether a taxi is a motor car or plant and machinery, and I meant to look into that.

If you buy a car during the year then you don't get the whole 25% in the first year - I think it's calculated per month - so if you have the car for nine months of the financial year then you'll only get three quarters of 25%.

You take the allowance allowed off the the starting value and next year take the 25% off that, so you won't ever stop getting capital allowances until you sell the car, because the allowances you get each year reduces because the starting balance is less.

Any private use will be disallowed from the capital allowances as well.

Eg, you spend £10,000 on a car, half way through the financial year.

25% is £2,500, and you only get six months of that, thus £1,250, and you have 10% private use, so you're only allowed £1,125 for tax purposes.

But the £1,250 comes off the purchase price of £10,000, so you start with £8,750 next year, and get 25% of that if you run the car for the full year, which is £2,188, less the 10% for private use.

So next year you start with £8,750 less £2,188 = £6,562. 25% of this is £1,641 and so on.

Think I read that from this tax year motor cars will only get 20%, and if your Co2 is high then only 10% :shock:


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PostPosted: Mon Apr 13, 2009 2:00 am 
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Fae Fife wrote:

I think you're closest to the mark Grandad, and depreciation for accounting purposes has to be distinguished from the taxation treatment (called capital allowances), and I think the others may be talking about accounting provisions.


This might sound like a stupid question but whats the difference ?

Quote:
One thing to bear in mind is that capital allowances on motor cars are limited to £3,000 a year, so if you buy an expensive motor then you won't get the full 25% initially, but you will get it eventually - it just takes a bit longer. At least that's the way my accountant did it last time round, but I think there may be a question mark over whether a taxi is a motor car or plant and machinery, and I meant to look into that.


Did you look into whether a taxi is a motor car or plant and machinery ?.


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PostPosted: Wed Apr 15, 2009 7:46 pm 
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JDBubbles wrote:
Fae Fife wrote:

I think you're closest to the mark Grandad, and depreciation for accounting purposes has to be distinguished from the taxation treatment (called capital allowances), and I think the others may be talking about accounting provisions.


This might sound like a stupid question but whats the difference ?



If you buy something like petrol then clearly you could show that as an expense on your profit and loss account.

On the other hand, if you buy an asset for the longer term - eg car or taximeter - then it would distort the accounts if you put the cost of the asset through in the year that you bought it. Thus the cost of the asset is spread over its useful life - eg, you buy a car worth £10,000 and it will last five years, thus depreciation is £2,000 per year, and this is shown as an expense in your profit and loss account each year until the car is dumped.

Of course, different assets require different methods of deprecition eg a building would be depreciated perhaps over 50 years, while it might be a good idea to depreciate a car with a big percentage to begin with then reduce it in later years, since that clearly reflects how cars depreciate in the real world - the value drops by less as the years go on.

Thus you might say that a car loses 30% in its first year, and then take 30% from the balance that's left, so the depreciation gets less each year.

Eg car cost £10,000, 30% is £3,000 depreciation, thus next year you take 30% of £7,000, which is £2,100 an so on.

So the best method is for the accountants to work out how to spread the cost in the best manner in the accounts over the asset's useful life.

So far, so common sense.

Problem is that the taxman won't accept the depreciation charge, and will add the depreciation charge back to your profit figure.

Instead he uses a method called capital allowances, which generally gives 25% for the first year and on the remaining balance thereafter, thus the charge gets less over time.

That's the general idea, but there's all kinds of rules to watch out for, such as the amount of capital allowances on cars being limited to a certain figure, so if you buy a dear car you wojn't get the full 25%, to start with at least - as the balance reduces each year the yearly allowance will reduce until it's all allowable.

Thus the basic point is that accountants and the taxman look at the issue differently, although in theory the numbers they use could be the same, but in practice this probably doesn't happen too often - at least it keeps them both in a job :lol:

If you look at the accounts and tax papers that your accountant give you you'll see that the depreciation figure in the profit and loss account is added back and instead your tax computation will show capital allowances deducted from your profit to come to the income that you pay taxes on.

The principle of depreciation and capital allowances are basically the same, it's just the details that differ.

No, I haven't looked into the car/plant and machinery issue yet - spent too much time on this post :D


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PostPosted: Wed Apr 15, 2009 8:34 pm 
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Fae Fife wrote:
JDBubbles wrote:
Fae Fife wrote:

I think you're closest to the mark Grandad, and depreciation for accounting purposes has to be distinguished from the taxation treatment (called capital allowances), and I think the others may be talking about accounting provisions.


This might sound like a stupid question but whats the difference ?



If you buy something like petrol then clearly you could show that as an expense on your profit and loss account.

On the other hand, if you buy an asset for the longer term - eg car or taximeter - then it would distort the accounts if you put the cost of the asset through in the year that you bought it. Thus the cost of the asset is spread over its useful life - eg, you buy a car worth £10,000 and it will last five years, thus depreciation is £2,000 per year, and this is shown as an expense in your profit and loss account each year until the car is dumped.

Of course, different assets require different methods of deprecition eg a building would be depreciated perhaps over 50 years, while it might be a good idea to depreciate a car with a big percentage to begin with then reduce it in later years, since that clearly reflects how cars depreciate in the real world - the value drops by less as the years go on.

Thus you might say that a car loses 30% in its first year, and then take 30% from the balance that's left, so the depreciation gets less each year.

Eg car cost £10,000, 30% is £3,000 depreciation, thus next year you take 30% of £7,000, which is £2,100 an so on.

So the best method is for the accountants to work out how to spread the cost in the best manner in the accounts over the asset's useful life.

So far, so common sense.

Problem is that the taxman won't accept the depreciation charge, and will add the depreciation charge back to your profit figure.

Instead he uses a method called capital allowances, which generally gives 25% for the first year and on the remaining balance thereafter, thus the charge gets less over time.

That's the general idea, but there's all kinds of rules to watch out for, such as the amount of capital allowances on cars being limited to a certain figure, so if you buy a dear car you wojn't get the full 25%, to start with at least - as the balance reduces each year the yearly allowance will reduce until it's all allowable.

Thus the basic point is that accountants and the taxman look at the issue differently, although in theory the numbers they use could be the same, but in practice this probably doesn't happen too often - at least it keeps them both in a job :lol:

If you look at the accounts and tax papers that your accountant give you you'll see that the depreciation figure in the profit and loss account is added back and instead your tax computation will show capital allowances deducted from your profit to come to the income that you pay taxes on.

The principle of depreciation and capital allowances are basically the same, it's just the details that differ.

No, I haven't looked into the car/plant and machinery issue yet - spent too much time on this post :D


Thanks for that, I actually rang the tax office last night and was informed that a car bought to use as a hackney was still classed as a car and subject to a limit of £3000 per year but a purpose built taxi such as an E7 or a TX4 was classed as a commercial vehicle and should be claimed under the new Annual Investment Allowance

Eg Profit after allowable expenses = 15,000
Annual Investment Allowance 100% - 27500 (cost of new E7)
Loss for year to be carried over to next year -12500

(Reduce Annual Investment Allowance by percentage of personal usage before application.)

I was also told that interest on loans and HP were not to be included in the AIA but claimed in the allowable expenses section.


Not sure if that makes sense but that is how I understood it.


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PostPosted: Thu Apr 16, 2009 6:29 pm 
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That's the way to encourage WAVs!!! =D>


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PostPosted: Fri Apr 17, 2009 3:42 am 
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JDBubbles wrote:
Thanks for that, I actually rang the tax office last night and was informed that a car bought to use as a hackney was still classed as a car and subject to a limit of £3000 per year but a purpose built taxi such as an E7 or a TX4 was classed as a commercial vehicle and should be claimed under the new Annual Investment Allowance

Eg Profit after allowable expenses = 15,000
Annual Investment Allowance 100% - 27500 (cost of new E7)
Loss for year to be carried over to next year -12500

(Reduce Annual Investment Allowance by percentage of personal usage before application.)

I was also told that interest on loans and HP were not to be included in the AIA but claimed in the allowable expenses section.


Not sure if that makes sense but that is how I understood it.


Thanks for that, JDB, I didn't know about this, seems like a new thing.

Basically it just looks like 100% capital allowances up front, which might mean no tax payable for a year or two, but tax bills in later years will be greater than they would be, so drivers may think it's great for a couple of years but they'll get a shock in later years.

As for interest on HP and loans, this normally goes through as an expense and isn't relevant for capital allowances, so no change there.

Eg Car costs £20,000, total repayments are £22,000 over four years.

The car is eligible for capital allowances on the £20,000, thus 25%, but the limit is £3,000 per year. The finance charges are £2,000 over the four years, so profit and loss account will show a charge of £500 per year for the interest, less any private use element if applicable.


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