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Sam
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capital allowances and or business assets

Resolved Question:

i have been registered for vat for 1 year, i buy and sell all sorts of plant an machinery and vehicles of every description, i see capital allowance doesn't apply to things i normally buy and sell, not sure exactly what this means but i would like to put down tele-handler and jcb tractor with plant trailer for business use, and claim back any vat payment and off set full purchase prices against year end income tax bill, can and do i do this as 100% capital allowances or put down as business expense, and what are the current and future cost implications either for the business and or any income tax repayments should they latter be sold,


 


basically same old question :-) how will i and the business be best off financially now and in the further,


 


thanks, jake.

Submitted: 1 year ago.
Category: UK Tax
Expert:  Sam replied 1 year ago.

Hi Jake

 

Thanks for your question

 

Capital allowances are in essence depreciation recognition on business equipment (that you actually use in your trade) so the items that you buy and sell, do not qualify for capital allowances, due to the fact that you sell them on, rather than use them for trade purposes.

So business equipment is opposed to day to day expenses (that are also incurred through the business, but do not have a shelf life so are claimed as they arise, as long as 100% business costs)

So do you actually use the tele handler and JCB tractor for business use, or are these items that you bought for the purpose of selling on to customers. If thats the case, then you can not claim capital allowances.

 

Also please note the VAT issue and the capital allowances issue are two entirely separate aspects, and if you do in fact use both of these pieces of equipment in the business then advise further, and I can then direct you as to how to claim these through the VAT return and the HMRC self assessment/corporation tax return.

 

Thanks


Sam

 

 

 

 

Customer: replied 1 year ago.

hello, yes they are to be used in the business for transport and loading, regards, jake.

Expert:  Sam replied 1 year ago.

Hi Jake

 

Thanks for your response, and apologies for mine, I was meeting with clients.

 

For VAT purposes, you can claim 100% of the VAT suffered on the purchase, and will account for VAT charged if and when the equipment is sold in the future. (Assuming 100% business use)

 

For tax purposes, you can either

1) Claim for 100% of the purchase cost, under Annual Investment allowance, but note that this is limited to £25,000 in any one tax year, so if these two purchases were made in the tax year 2012/2013 or after then this is the maximum you can claim under the annual investment allowance regime, and any excess has to be claimed through the general pool of capital allowances (20% can be claimed on the balance)

2) Just put the items in the general pool, and claim 20% for the year they were purchased and each year thereafter

 

When you come to sell these items, then if you have claimed under the annual investment allowance (so 100% of the value) then any amount you sell it for, you have to add back into your accounts, as a balancing charge.

If however, all or some or the value remains (as you have claimed all or some through the general pool) then you compare this with the value you have at the time of disposal, and if you sell for more, than that value then you have a balancing charge to add into your accounts, but if you sell for less, then you claim the additional capital allowances.


For example

Bought for £15,000 and 100% claimed,(under the annual investment allowance rules) so the value to carry forward is NIL

Sell for £10,000 then this is added into the income as balancing charge (so in essence you pay tax on the £10,000

 

Bought for £15000 and claimed 20% in the year of purchase - so as £3000 claimed and £12,000 value remains, then if sold for £14,000 the following year, then you add £2000 into the balancing charge, which means you pay tax on the additional £2000

But if instead sold for £10,000 then you claim the difference of £2000 as a capital allowance.

 

As to what is financially better for you, is dependent of whether you intend to use this equipment for some time, rather than sell it.

If you plan to use this (for as long as they work!) then there is no harm in claiming annual investment allowances, but if you instead to sell a couple of years down the line, then this could hit you hard in the tax bill that arises in the year you sell either item.

But without full access to you accounts for the last year or two, or knowledge of how the business is growing, its impossible to advise one way or another, with any useful indicators, and then there is never certainty in business !

 

Thanks

Sam

 

 

Customer: replied 1 year ago.

thanks for your help......


 


under the annual investment allowance if i claimed the 100% of say £10,000 purchase and then after so many years the item was worth a much lower amount and either sold or scrapped would i still have to put the £10,000 back into my accounts,


 


or would/ could it be written off at any point, regards, jake.

Expert:  Sam replied 1 year ago.

Hi

 

No, if sold, then you compare that sale value with the £10,000 claimed from HMRC, and then add this back in as a balancing charge, so if sold for £2000, then as you have had the full value of £10,000 leaving a NIL value to carry forward, then the sale value of £2000 has to be added back in.

If however its scrapped, then its value would normally be NIL, so you add nothing back in. (so yes written off)

 

If you could rate the level of service, it would be appreciated, as this ensures I am paid

 

Thanks


Sam

Sam, Accountant
Category: UK Tax
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Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
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