Tax question

[Covenant]

Thankfully I am no longer self employed so wont have to fill in another of these horrible self assessment forms. One bit I am stuck on is the write down allowance for capital expenditure on cars. On HMCE website it gives the following example:
Example: If you are self-employed, pay Income Tax, your accounts are drawn up for a full year to 5 April 2012 and you spent £25,000 before 6 April 2009 on a car that is used wholly for business purposes, then the calculation is as follows:
Cost of car in 2008-09 = £25,000
Balance brought forward from 11/12 = £ 12,800
WDA (£12,800 x 18% ) = £2,304 less than £3,000 so no restriction required. WDA you can claim in the year = £2,304
Balance after allowance £10,496

I dont understand the £12800 figure. Can someone show me how that figure is worked out so I can apply it to my circumstances?
Thanks in advance.

[Macca]

I'm guessing its the balance left on the original 25K cost of the car after the WDA has been deducted for the intervening years, and next years figure would be the carry forward from this year of £10496

[Covenant]

Thats what I thought but applying their figures:
08/09-25000
09/10-22000
10/11-19000
11/12-15000
So in the above calculation the value reduces by £3000 for every year until it reaches £15000. How do they calculate it as £12800?

[Marco]

Pinky's yer man for this, dude!

Marco.

[Macca]

The WDA is 18% so first year it is 18% of 25000, second year 18% of 20500 amd so on - work back and you end up with 12794 which is as close to 12800 as dammit.

[Oldpinkman]

There are 2 possible explanations - conspiracy or cock-up. I think its cock up. HMRC generally score high for cock up - I think the official stats are 45% error rate in tax returns

The WDA is (was) 20% pa subject to a limit for "expensive" cars of £3000 pa. So your figures are
08/09 25000 3000
09/10 22000 3000
10/11 19000 3000
11/12 16000 16000*.2 = 3200
12/13 12800

Of course, that explains how they got their figures. It doesn't make them right. In their excitement they forgot to apply the £3000 limit in 2011/12. This is known as a cock up.

However, if you are no longer filling in tax returns, you have presumably ceased trading, in which case there will also be a balancing charge or allowance, which makes the WDA calculation irrelevant. Working out what your balance is should also be irrelevant, since you will have been doing it each year you filed the returns before, and regardless of whether you got those right or not, it is the balance left from your latest tax return. Basically, your allowance or charge in the year you cease trading is the difference between your opening tax wdv and the disposal proceeds (arms length market value - glasses guide or similar if you have just kept the car as yours personally). Don't forget there is usually a disallowance for personal use - so if we assume 80% business use, the allowances claimed would have only been £2400 in each of those years, although the pool value drops by £3000. So assuming their (wrong) figures, and you value your car at £9500 in 12/13 then the allowance is (£12800-£9500)*80% = £2640.

Simples ;)

[MikeMusic]

My accountant advised me to claim for business mileage only

Maybe as I have a 1996 Saab which I bought for £1700 a few years ago and is worth not a lot
Director of Ltd co.

He also advised I could buy my nice bike on the company !

[Oldpinkman]

My accountant advised me to claim for business mileage only

Maybe as I have a 1996 Saab which I bought for £1700 a few years ago and is worth not a lot
Director of TLd co.

He also advised I could buy my nice bike on the company !

No Mike. You are trading as a limited company. Business mileage at 45p, with very rare exceptions, is the best solution there - especially with that car. It's what I do myself. The issue is that as an employee the car is a P11d benefit in kind and the car benefit alone is horrible (the fuel benefit even worse). I picked up a client recently where the previous accountant had just "not noticed" this fairly fundamental error - which was fun (not). However Jerry is a sole trader so no BIK issues. Not that it applies to him, but those who have not ceased trading should be aware that this is brewing up to be a hot topic due to HMRC record check powers issued a couple of years back, and their subsequent "guidance" as to appropriate records and calculations. In the past we all stuck a wet finger in the air and said "probably 90% business use" and chuckled to ourselves over a nice G&T. HMRC rather rudely have published "guidance" to the effect of "I take it you can support that allocation with a log of business journeys made" Oh deary deary me.

But generally, assuming you have earnings above the poverty line - you want to be trading as a limited company and not a sole trader if possible. I couldn't possibly say why on a forum HMRC might read, but we all know why ;)

[Oldpinkman]

(Don't mention it to the lawyer on that other forum, but a bit more buck-shee advice)
The other hot topic for "Man in the pub" or "shite accountant" advice is the "use of home as office". Again our chums have published tedious guidance. But the big cock-up is to apply this in limited companies at all. The company can't use its home as an office in the way a sole trader can. The company doesn't own the home. It would need to pay rent or an allowance to the owner, who happens to be an employee - a director - and therefore subject to P11D bik's again. There are work-rounds, and indeed some useful tax planning opportunities now we have the problem of NI thresholds ( 4 of them, all different, but the main one about £7500) badly out of synch with the PAYE threshold (£10000 soon), but again, not for public forum, since we pretend we do these things for commercial rather than tax reasons. PM me after 31/1 if interested.

:eek:

[Covenant]

Thanks chap's, especially Richard who is now our new tax expert and will be pestered constantly!
I actually ceased trading at the end of july 2013 so I suppose I will have another return to face next January, presumably that is when I sort out the balancing charge. With regard to the working from home bit, I phoned the HMRC for advice a couple of years ago and they told me I could only claim £3 a week without substantial proof.

[Oldpinkman]

Thanks chap's, especially Richard who is now our new tax expert and will be pestered constantly!
I actually ceased trading at the end of july 2013 so I suppose I will have another return to face next January, presumably that is when I sort out the balancing charge. With regard to the working from home bit, I phoned the HMRC for advice a couple of years ago and they told me I could only claim £3 a week without substantial proof.

Hi Jerry. You are right - the balancing charge applies to the final period. If you have been trading since 1995 and you didn't prepare accounts to 31 March or 5 April, then you probably have overlap relief to claim (strictly transitional overlap relief). £3 a week is seriously weedy - and requires absolutely sod-all proof. It's now £4 a week, and is your minimum cop-out for people trading as a limited company (ie it is a no questions asked , non P11d, allowance of employment). As a sole trader you can get away with more than that (well not you now, you're retiring, but anyone else reading this). As a director you can and should claim more than that, but as discussed previously by PM only! :stalks:

NEVER ask HMRC for tax advice. It's like Red Riding Hood asking the wolf! :mental:

[MikeMusic]

But generally, assuming you have earnings above the poverty line - you want to be trading as a limited company and not a sole trader if possible. I couldn't possibly say why on a forum HMRC might read, but we all know why ;)
Yes advised to do that
:)

[MikeMusic]

(Don't mention it to the lawyer on that other forum, but a bit more buck-shee advice)
The other hot topic for "Man in the pub" or "shite accountant" advice is the "use of home as office". Again our chums have published tedious guidance. But the big cock-up is to apply this in limited companies at all. The company can't use its home as an office in the way a sole trader can. The company doesn't own the home. It would need to pay rent or an allowance to the owner, who happens to be an employee - a director - and therefore subject to P11D bik's again. There are work-rounds, and indeed some useful tax planning opportunities now we have the problem of NI thresholds ( 4 of them, all different, but the main one about £7500) badly out of synch with the PAYE threshold (£10000 soon), but again, not for public forum, since we pretend we do these things for commercial rather than tax reasons. PM me after 31/1 if interested.

:eek:

I shall

[StanleyB]

A good site to visit or even join as a member is http://www.ukbusinessforums.co.uk/
It saved me £££ over the years.