New van & scrappage scheme

[Matthew77]

Hi All

The van I bought to start my business up 2 years ago (an old vauxhall combo) is looking a bit rough & I'm starting to look at buying a newer van as I'm wanting to rack out the inside & sign write the van but don't really want to do that on a van that only cost me £500 & could need some serious money spent on it in the near future.

When I took my van in for its last MOT the mechanic suggested looking into the scrappage scheme as with 2k off a new van you'd get all the benefits of a new van & with lease hire I could use the lease payments against my tax bill?

Could someone pls explain how this works? For instance if I'm paying say £200 a month in tax could I lease a van for £200 a month and end up paying no or very little tax at the end of that year if my earnings stay the same each month. I know that this subject is very much dependant on individual cercumstances but If somebody could explain generally that'd be great.

Last year I grossed about 12k & am hoping this year I'll be earning more than that. I'm self employed as a sole trader, don't employ anyone else & am not vat registered.

Any advice would be much appreciated.

Thanks in advance

Matthew

 

[grumpygrouter]

How a "lease" is accounted for tax wise depends entirely on the type of "lease" you enter into. An "operating lease" where you never own the vehicle and end after the initial lease term with a "secondary lease" is charged fully to the Profit and Loss account and is therefore fully deductable against your tax. Other types of lease, like PCP is classed as "None Operating" as you eventually own the vehicle under the terms of the agreement. With this type of finance only the interest part of the payment is allowable directly against your profit and loss account. The vehicle must be capitalised on the balance sheet and accounted for tax wise by way of the capital allowances regime.

In your case, you are probably better off just using normal higher purchase type schemes as the interest paid is usually lower, you are not "fixed" into a muti year (non-cancellable) agreement and can dispose of the van if you wish too. The full value of the van can be reclaimed against your profits on your tax rerturns and with the new system just introduce probably all at once in the first year, but don't quote me on that, I haven't had the opportunity to work through the legislation and apply the rules in the real world yet.

 

[diamondtiling]

Just be careful as well when Leasing vehicles, it seems a small amount to pay when given as a weekly figure but in this economic climate you only have to fall behind through no fault of your own and your credit history will be damaged, when the leash is finished and its time to give the van back it has to be pristine (apart from normal wear and tear) the dealer will go through it with a fine tooth comb, I used to lease 2 vans and own another, (in the good days) I ended up with an 850.00 bill for items above wear and tear. For vat purposes it is a great idea to buy a van if you have a large vat bill due in order to lower the bill because you can claim all the vat back straight away.
Personally I dont think your turnover is high enough at present to warrant leasing a van, £12k gross is £230.00 a week gross, not really a high enough figure to allow you to ride a quiet period and look at the one we are in at present.
Think seriously before such a financial committment and do what you really think is best, I have changed my vans every 3 years for the last 12 years but this one is staying because its paid for and I simply cannot afford to even think about another until work picks up.

 

[Matthew77]

Thanks grumpy.

So am I right in thinking that with the HP option your suggesting I can either reclaim the tax over say upto 4 years or all at once in the first year. Say for instance I buy a van on HP for 10k and offset that against my profits in the first year how do I work out how much tax relief that gives me would it be the VAT on the van or is it the whole price of the van?

thanks again

 

[diamondtiling]

Matt, unless you are VAT registered then the vat will not effect you apart from costing you more, try to find a van privately without vat being caherged. there are thousands of them, you could then borrow from a bank (maybe) and fund the purchase that way, your monthly payments would be tax deductable I am sure.
Go to the Northern Rock bank and say I and 20 others sent you and that they should give some money out of the safe.......what? we all own that bank now dont we?

:smilewinkgrin::smilewinkgrin:

 

[Matthew77]

Matt, unless you are VAT registered then the vat will not effect you apart from costing you more, try to find a van privately without vat being caherged. there are thousands of them, you could then borrow from a bank (maybe) and fund the purchase that way, your monthly payments would be tax deductable I am sure.
Go to the Northern Rock bank and say I and 20 others sent you and that they should give some money out of the safe.......what? we all own that bank now dont we?

:smilewinkgrin::smilewinkgrin:

I'd thought of a loan from a bank but with interest rates at there lowest, for some reason when you'd like to borrow the interest rates seem a little bit high (my bank which shall stay unnamed) wants to charge me 20 odd percent for loans upto 8k:yikes: So I thought maybe buy a second hand van from a dealer & get a lower interest rate along with a short guarantee, that got me onto thinking about scrappage scheme and new vans, finance, leases & HP:mad2:

Just trying to weigh everything up & understand how when you buy a van you can lower your tax at the end of the year as your profit is less & how that works? (its only my second year as self employed)

Might give northern rock a call, see what they can GIVE me:lol:

 

[dagger]

you have got to have a van and it needs to be reliable, in order to get you and your tools to work!

in the second year of trading i would not buy a new van, or lease,
look for a good quality second hand van from a dealership,
circa £5000, buy it on hp, pay for it over 3 years, about £150 per month,
all you need to worry about is the £150 per month, and yes its deductable.

this way you are not out of pocket have a nice van, and in year 5 when you are turning over £50,000 plus look at buying a new van.

imo.

 

[grumpygrouter]

Matthew, when you are not VAT registered and you buy a van, you will be paying the price including VAT. If you buy on HP (for instance) you will need to charge the full cost to you of the van as and asset on your balance sheet. Up until this year, you were given "capital allowances" on your tax return for your van of 25% of the cost ( in simple terms for you but it is slighhtly more complicated than this) each year. So say for instance you bought a van for £10,000 the first year you would be entitled to reduce your "taxible income" which is your profits with adjustments, by £2500. hence saving you tax.

if you asre intending getting an accountant/adviser to help with your books and tax returns, I suggest you sit down and have a chat with him/her about the best way for "you" to fund this purchase.

 

[grumpygrouter]

you have got to have a van and it needs to be reliable, in order to get you and your tools to work!

in the second year of trading i would not buy a new van, or lease,
look for a good quality second hand van from a dealership,
circa £5000, buy it on hp, pay for it over 3 years, about £150 per month,
all you need to worry about is the £150 per month, and yes its deductable.

this way you are not out of pocket have a nice van, and in year 5 when you are turning over £50,000 plus look at buying a new van.

imo.

The interest portion is deductable.

 

[diamondtiling]

Go and find an accountant that used to work for the Inland Revenue, it is easy to find out because you ring them and ask, they are simply the best at what they do, they have worked the system trying to get your money and now they are on the other team, mine is the dogs crown jewels, I dont have to worry about anything apart from my bill, he hates the system and that is why he left to go on his own. He puts my dogfood through my books because I use it as a guard dog to protect my garage/van etc from burglars. So beware anyone coming near my property had better watch out for a poodle with a pretty bow and fancy coat.

:lol::lol::lol:

 

[Matthew77]

you have got to have a van and it needs to be reliable, in order to get you and your tools to work!

in the second year of trading i would not buy a new van, or lease,
look for a good quality second hand van from a dealership,
circa £5000, buy it on hp, pay for it over 3 years, about £150 per month,
all you need to worry about is the £150 per month, and yes its deductable.

this way you are not out of pocket have a nice van, and in year 5 when you are turning over £50,000 plus look at buying a new van.

imo.

Hi Dagger

could you pls explain how to work out how much money is deductable is it the whole amount say £5000 is deductable off the profit so say I earn £15 000 this year I would only pay tax on £10 000? so therfore saving around 20% of £5,000 in tax?

I was going to do exactly as you quoted in your reply about getting a second hand van for around £5000 from a dealership, then I noticed that with the scrappage scheme some dealerships near me are doing new berlingo vans for around £6000...so was considering that

 

[doug boardley]

Matthew, we don't advocate fiddling the system though:yikes:

 

[Matthew77]

Hi Dagger
could you pls explain how to work out how much money is deductable is it the whole amount say £5000 is deductable off the profit so say I earn £15 000 this year I would only pay tax on £10 000? so therfore saving around 20% of £5,000 in tax?
I was going to do exactly as you quoted in your reply about getting a second hand van for around £5000 from a dealership, then I noticed that with the scrappage scheme some dealerships near me are doing new berlingo vans for around £6000...so was considering that

thanks grumpy I think you've explained my question.

 

[dagger]

Hi Dagger

could you pls explain how to work out how much money is deductable is it the whole amount say £5000 is deductable off the profit so say I earn £15 000 this year I would only pay tax on £10 000? so therfore saving around 20% of £5,000 in tax?

I was going to do exactly as you quoted in your reply about getting a second hand van for around £5000 from a dealership, then I noticed that with the scrappage scheme some dealerships near me are doing new berlingo vans for around £6000...so was considering that

the prices quoted on the forcourt are not what you will pay,
secondly, i am not an accountant, i pay one!

thirdly, dont worry about tax! we all have to pay it!

my point is you own the van so any damage is your own fault and you will not be penalised (you would with a lease)
it only costs 150 per month, and you get a good quality van!!!

you are only in year two so chances are you have not even earned enough after expenses to pay any tax, in fact they proberbly owe you money!

if you put 20% of every payment into your company bank account, into a high interest savings account you will always have enough money to pay your tax bill, and the accountant!

Good luck

 

[Matthew77]

Matthew, we don't advocate fiddling the system though:yikes:

Of course not, I haven't earned enough yet to even think about fiddling the system