capital allowance for car bought using scrappage scheme

by **drum** on Wed Feb 17, 2010 11:43 am

I have just placed an order for a hyundai i10 to use entriely as a business vehicle (slef employed GP)

Car is due for dleivery april/may 2010.

Total price £7600

I have used the government scrappage scheme. Balance therfore £5600 and I have paid a £500 deposit. The balance will be paid from cash reserves

Querstions:
1. I asssume capital alowance claimable for 2009/10 as contract signed for purchase and deposit paid in this tax year
2. Is the correct calculation figure for depreciation 25%
3. is the original purchase value recorded as £7600 or £5600 to which the 25% is applied
4. the car it is replacing has no value / has not been used for the business so no depreciation etc made. Do I have to account for its "£2000" value for the scrappage scheme and if so how

by **Budget83** on Wed Feb 17, 2010 5:00 pm

1) you pick your own depreciation figure. for car/Vans I like to use reducing balance.

2) I would put it in the accounts at £5600. The only other way would be to show the £2000 from the goverment as income in the P&L and the increased value of the car at £7600 in the balance sheet. Either way there is no advantage. To keep it simple I would use £5600.

3)sort of answered above. if you use £2000 as a disposal value the value of the new van is £7600. If you use disposal value 0. then use £5600 in the balance sheet. There is no advantage in using either method.

by **Incredulum** on Mon Feb 22, 2010 4:00 pm

the car it is replacing has not been used for the business

Whilst I don't think there is necessarily a correct answer, Budget83's response seems to miss this point (by a long way at one point!).

I think the best way is to take in the market value of the car that was disposed of. Say it was worth £500 (it must have been worth something as scrap if nothing else).

Then claim capital allowances on £6,100.

If you really had disposed of another (non-business) car, then you would do the calculation thus.

Whatever you do, do not bring 2k in as profit!

by **Budget83** on Fri Mar 05, 2010 4:07 pm

I think your quite rude at one point..

I woulnt point out the irony that your answer doesnt look very accruate in my eyes.

Why would you claim allowances on £6100!! thats not even the total price or the price minus the Scrappage scheme grant.

My bookkeeping method is sound. Either way the corp tax calculation will be the same when you include AIA. 2k profit/2k extra capital allowances.

So please unless you can be constructive and tell me exactly why I have missed the point as I do like to take on board comments dont be rude and then leave an answer that leaves me scratching my head.

by **Incredulum** on Mon Mar 08, 2010 2:16 pm

He never used the current car in the business, so I really don't see how he can bring a disposal value in to his business.

We cannot be certain - from the facts given - about the availability of AIA, so I really don't think it helps to tax £2,000 as income and claim it back through AIA.

And then he has traded in his old car and put the proceeds into the business. So surely he deserves tax relief on the value of the old car he put in. I guessed at £500 for its market value (as scrap it's worth £50, on eBay more than that) by way of illustration.

I am obtaining more tax relief than you are; the trade-in vehicle is consideration for the purposes of capital allowances. I certainly don't see how you can tax £2,000 profit on sale of a non-business asset - what GAAP do you use?!

I guess there must be an argument for not taxing the £2,000 but bringing in a value of £7,600 for CA purposes, but I think it's rather aggressive although quite clearly the personal contribution to the business is £2,000.

Clear? Or disagree?

by **Incredulum** on Mon Mar 08, 2010 2:18 pm

Either way the corp tax calculation

I doubt it...

by **Budget83** on Tue Mar 09, 2010 1:56 pm

I dont see the difference between a parson paying a £500 deposit personally or using a personal asset as a deposit. Either way its £500 from the person and is certainly not liable for tax relief.

I will go back to my first post and highlight that I actually said I would put it in the accounts at £5600. This sidesteps all the issues we have argued about on this forum anyway.

I would also justify my other post as its not shown as £2000 profit from the sale of a non buisness asset it would be shown as £2000 pound grant from the goverment which while not knowing the exactly IAS/IFRS I would say it was prudent to show this income while at the same time showing the correct value of the asset in the BS.

As to taxation of grants this isn't something I have come accross yet. But unless I know different I would include all income as taxable.

Its defiantly something to look into having the car in a £7600 and the 2k as a grant which isnt taxable in the CT600 but I cant see the chancellor being that nice to LTD companies.

by **Incredulum** on Tue Mar 09, 2010 5:53 pm

Firstly, not that it makes a difference to the answer, he's not a Ltd company subject to corporation tax, but a

self employed GP

Secondly,

I would say it was prudent to show this income while at the same time showing the correct value of the asset in the BS.

That's all very well, but you're subjecting him to possibly as much as £1,220 of tax by treating it as a grant. It cannot possibly be correct that the action of buying a car which has allegedly been subsidised by the Government for the purposes of boosting the economy should give rise to a tax bill of £1,220, i.e. more than the subsidy from the Government - notwithstanding the point that it would only be a timing difference. It's neither income nor a grant. It's a discount to cost.

I dont see the difference between a parson paying a £500 deposit personally or using a personal asset as a deposit. Either way its £500 from the person and is certainly not liable for tax relief.

I suggest you have completely misunderstood capital expenditure and capital allowances. Cash laid out on capital expenditure certainly IS eligible (I don't think you meant "liable") for tax relief. If it isn't, under what circumstances do you think that you ARE elegible for tax relief?????!

Finally, perhaps you would explain how you think he would get AIAs. In my copy of the legislation there are no AIAs for cars, see s38B General Exclusion 2 CAA 2001. Under the law as it applies to me there is a real tax cost to him of your suggested treatment of £2,000 as income (unless it is a green car and 100% FYAs apply).

So, in conclusion, I remain absolutely convinced that it is correct to put the car in at a capital allowances value of £5,600 PLUS the value of the car traded in. And this value is not nil, as the car has to have a valid MOT at the point (or very shortly before) it is traded in.

by **Budget83** on Wed Mar 10, 2010 9:06 am

You have a point that i have become lost is this silly argument and I lost site of the orginal question.

That's all very well, but you're subjecting him to possibly as much as £1,220 of tax by treating it as a grant. It cannot possibly be correct that the action of buying a car which has allegedly been subsidised by the Government for the purposes of boosting the economy should give rise to a tax bill of £1,220, i.e. more than the subsidy from the Government - notwithstanding the point that it would only be a timing difference. It's neither income nor a grant. It's a discount to cost.

Exactly how does an extra 2k income and and extra 2k in capital allowances give rise to any increase in taxable profits.

Lastly if it is treated as a discount then my orginal and prefered option was right so you are splitting hairs.

I have grown tired of defending myself against you! Yes I overlooked the AIA and treated the car more as a van. However as you pointed out its a green car so there is 100% FYA anyhow.

However if to total cost of an item is £200 you claim capital allowances on the £200. If the total cost is £200 and you put down a £50 pound deposit you still claim capital allowances on the £200..... NOT £250

I might point out that maybe you are getting "confused" with a business asset disposal and a personal asset.

That is the last I have to say on this matter as I am learning zero from this discussion.

by **Incredulum** on Wed Mar 10, 2010 1:15 pm

100% FYAs: Not true. We do not know it is a green car. I merely moot that as a possibility.

As the top marginal rate of tax is now 61% (including NI) it is perfectly possible for him to suffer as much as 1,220 of tax (though I admit, if he claims 20% capital allowances on the car it reduces to just £976).

You're still missing the point that he is disposing of an asset that he is putting towards the cost of his new car. The cost of the new car is not £5,600, it is more than that, to the extent of the value of his old car. You are denying him capital allowances on the value of his old car, which is capital introduced to the business. Worse still, you suggest taxing it, but probably claiming the relief over the following years!