Q: What’s the procedure for writing down a new business vehicle?
Jun 28 2010
Answered by: Clive Lewis Ask a question
This is dependent upon how the business vehicle is purchased. If the vehicle is a straightforward purchase or hire purchase the whole value of the asset in the accounts will usually be depreciated at 25 per cent per annum on the reducing balance. If the vehicle is a van any input VAT can be reclaimed on the next VAT return and the net cost shown in the accounts and in the tax calculations.
For tax purposes, a van can qualify for 100 per cent capital allowance if the business is a smaller business. If the vehicle is a car it qualifies for a 20 per cent capital allowance against tax. After the first year the written down value is reduced by the amount of the preceding years writing down allowance.
If the business is a sole trader or partnership only the business use will qualify for the 20 per cent capital allowance (and deduction of expenses against profits). If the business is a limited company all allowance is claimable but you will be taxed on the benefit.
If the vehicle is acquired on an operating lease on monthly or quarterly terms, the cost is chargeable against profits and the VAT on a van charged by the finance provider is fully recoverable. However, on a car the VAT is only 50 per cent recoverable. There are no capital allowances for vehicles acquired on operating leases (the capital allowances are claimed by the lessor).
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