What Tax Breaks Are Available For A Used Business Van?
October 12, 2018 at 4:16 PM
Buying a used van for your business whether you're a registered limited company, a partnership or self-employed can be advantageous to your bottom line. It's worthwhile considering a range of options including whether it's better to buy the vehicle outright or lease it depending on the business' finances.
There are a number of tax breaks available to help take the sting out of an expensive purchase like a van, particularly if you're VAT registered.
RECLAIM VAT CHARGED TO YOU
As long as the business is VAT registered, you can reclaim any VAT that you've been charged, including the purchase of a second-hand van. You will need to check with the seller if there's any VAT included with the selling price.
If there is, you need to ensure you're given a VAT invoice stating the amount of VAT paid as evidence for your reclaim. For example, if you buy a van with a VAT inclusive price of £20,000, you will be able to reclaim £3,333 in VAT.
Unfortunately, if you buy from a private seller, you won't be able to reclaim any VAT on your purchase.
TAKE ADVANTAGE OF THE ANNUAL INVESTMENT ALLOWANCE (AIA)
Using this allowance, a business can claim the full cost of capital expenditure against profits in the year of purchase. Capital allowance claims currently have a very generous threshold of up to £200,000 worth of capital items purchased in a tax year.
Going back to the example of the £20,000 van, a basic rate tax payer would save £4,833 in tax and national insurance in the year of purchase. So, after VAT and tax relief, the van will cost £11,834.
MONTHLY FINANCE PAYMENTS ARE TAX DEDUCTABLE
If you choose to finance your van with a bank loan or lease it from the dealership, the overall cost of the van will increase because of the interest you will have to pay.
However, interest is also tax deductable against profits, so you can claim up to 100% VAT back on the monthly payments (provided the van is only for business use). The interest is spread over the term of your agreement, so you will receive tax relief for this over a few years.
CLAIM EXPENSES AGAINST YOUR INCOME TAX BILL
If you're self-employed, you're entitled to claim for a range of allowable expenses which enable you to deduct some of the running costs from your taxable profit.
A limited company needs to follow different rules - you can deduct any business costs from your profits before tax, but must report any item you make personal use of as a company benefit.
You can claim allowable business van and travel expenses for:
- Vehicle insurance
- Repairs and servicing
- Vehicle license fees
- Breakdown cover
You can't claim for:
- Non-business driving or travel costs
- Travel between home and work
Similarly, if you buy a van outright, you can claim the cost of buying a van as expenses. How you do this depends on how you pay tax - if you use traditional accounting or cash basis accounting, you can claim the van as a capital allowance; however, this method is not possible if you're using simplified expenses.
BENEFIT IN KIND CONSIDERATIONS
When a business vehicle is used for personal use, a benefit in kind allowance must also be considered. The benefit in kind allowance is processed differently for specific business types. It can affect personal vehicle usage and personal fuel usage.
Limited companies process the benefit in kind allowance, and are also required to process National Insurance contributions on the benefit. Self-employed and partnership businesses process their benefit in kind through personal income tax or by restrictions on their capital allowance claims.
Used vans are acceptable to HMRC for benefit in kind allowances when they meet certain specifications. Some light commercial vehicles are not acceptable.
Disclaimer: Always seek advice from a professionally qualified accountant if you are unsure about the tax breaks you can claim for.
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