Will purchasing a new company vehicle pay?

[sabreone0]

Hello there, I run a small gardening business that turns over approx £150k pa. Our 8 year old tipping truck keeps breaking and is proving very expensive to keep on the road.

With the help of a bank loan I would loke to purchase a new truck. This truck would cost £30k to purchase and I would like to depreciate this vehicle over a 5 year period through our books.

I understand that the interest on the loan can be offset against our tax, however wondered if there was any other tax benefits that would make an investment of this size more viable.

I wondered if the depreciated value year on year could be offset against our profits?
Your help and advise are really appreciated

[Incredulum]

(Why not buy a second hand or nearly new one?)

Yes, you can offset "capital allowances" against the business. The first 25k can be deducted in its entirety in the first year through teh Annual Investment Allowance ('AIA') - though of course you may have other purchases like tools which would normally use the AIA. The remaining 5k is deductible on a reducing-balance basis at 20% per annum (becoming 18%).

So:
First year 20% of 5k = 1k. Remaining balance is 5k-1k = 4k.
Second year 20% of 4k = 0.8k. Remainign balance is 4k-0.8k =3.2k.
Third year 20% of 3.2k = 0.64k. remaining balance is 2.56k
etc. etc.

(20% used by way of example as it's easier maths-wise than 18%).

[Generix]

If its a commercial vehicle then don't forget that you can recover the VAT

Happy days

[towat]

Or if you leased it instead of buying it outright you would get tax relief on the monthly leasing payments.

[sabreone0]

Iam getting closer to understanding!!

--------------------------------------------------------------------------------

Thank you for your help. It is much appreciated.
I have done further research and the the new truck would cost approx 20k to buy. Less than I thought!! We turn over 150k pa with about 30k taxable profit. We are a limited company.
Please could you advise if this purchase would be cost effective over a 5 year plan.
My understanding is limited but the Annual investment allowance would give us 100% tax allowance now. How does this work? Would we pay no corporation tax this year?
We could also depreciate the vehicle over the term and claim interest relief on the bank loan (we would borrow 100% on the truck and so our loan would cost around £400 a month over 5 yrs)
How does depreciation work? can you claim tax relief against the 18% or thereabouts that the vehicle loses each year?
Would this purchase pay from a tax offsetting standpoint. On a month to month basis would the loan repayments be offset on the whole against our tax bill or would we be better just to muddle on with our old vehicle and keep paying the repair bills?
Sorry for all the questions.

[Incredulum]

Every 20p of tax you save costs you £1 of real money.

Only you can assess the differential commercial benefit.