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Best time to pay off a commercial vehicle loan

Client wants to pay off loan on commercial vehicle. Would it be better before or after year end?

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My client whose books I look after has a 48 month finance loan on a commercial vehicle that has about another year to run.  He has obtained a settlement figure, but wants to know whether its better from a tax point of view to pay off the loan before or after year end. Year end is August.  He is happy to wait until September if this is advantageous.  

Settlement figure is circa 4k with asset value around 25k.

Thanks

 

 

Replies (19)

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By David Ex
17th Jun 2022 12:55

Struggling to understand the question (probably my fault) but the thing to do is to calculate “the numbers” on scenario A and then on scenario B and then decide which is preferred.

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By Hugo Fair
17th Jun 2022 12:52

We're not here to make judgement calls (even if we could without all the details).

If you set out the two alternatives as you see it ... then (a) we'd have a clue as to which aspect you're measuring in terms of whether or not it's "advantageous"; and (b) more importantly it might be clearer as to what specific question (as opposed to generalised 'advice') you're asking.

EDIT: David beat me to it - and is as usual more succinct!

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By lionofludesch
17th Jun 2022 12:53

He'll pay less tax if he pays it off in September. Having paid more interest.

Not that I'm necessarily seeing that as a benefit.

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By lionofludesch
17th Jun 2022 12:54

.

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By lionofludesch
17th Jun 2022 13:05

.

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By lionofludesch
17th Jun 2022 13:05

.

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Replying to lionofludesch:
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By Paul Crowley
17th Jun 2022 12:55

Software a bit slow today?

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Replying to Paul Crowley:
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By Tax Dragon
17th Jun 2022 12:58

Nah, he's just after four lots of thanks... (it's how he stays ahead of you).

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By Paul Crowley
17th Jun 2022 13:07

Claiming the Lion's share

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Replying to Paul Crowley:
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By lionofludesch
17th Jun 2022 14:00

Paul Crowley wrote:

Claiming the Lion's share

Somebody's winding you up ..........

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Replying to lionofludesch:
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By Paul Crowley
17th Jun 2022 19:20

It happens as regular as clockwork

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By Tax Dragon
17th Jun 2022 14:09

I fear for the correctness of the tax treatment to date.

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Replying to Tax Dragon:
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By lionofludesch
17th Jun 2022 14:12

It crossed my mind but, as you keep saying, don't drift off the question posed.

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Replying to lionofludesch:
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By Tax Dragon
17th Jun 2022 14:31

But the OP is asking for advice. My advice would be to appoint an accountant - there, I've said it - and the reason I give that advice is that, based on the question posed, I fear for the correctness of the tax treatment to date. (This forum is neither an accountant nor a substitute for one.)

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Replying to Tax Dragon:
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By David Ex
17th Jun 2022 17:02

Tax Dragon wrote:

But the OP is asking for advice. My advice would be to appoint an accountant -

Description is “Financial Controller BS Initiative Ltd” so assuming there is no client. Definitely need an accountant.

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Replying to David Ex:
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By Mr_awol
17th Jun 2022 17:16

David Ex wrote:

Tax Dragon wrote:

But the OP is asking for advice. My advice would be to appoint an accountant -

Description is “Financial Controller BS Initiative Ltd” so assuming there is no client. Definitely need an accountant.

First line of the OP starts "My client, whose books i look after".

Still probably needs an accountant, due to concern over the tax treatment to date, but (open to interpretation about what 'client could mean of course' may or may not already have one.

(I'll leave others to decide whether to take this the next step, wait for clarification, or just leave it at that)

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By Mr_awol
17th Jun 2022 17:32

Edit: double posting

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By DKB-Sheffield
18th Jun 2022 00:13

@OP

Why do you think it will make a difference?

Aside from tax relief on the interest (as Lion has suggested), I can't see how the repayment of the finance (loan) will have an impact on tax. Regardless of the settlement amount, or asset value!

Perhaps confirming the actual specifics will help... in particularly...

1. S/T or Company (if S/T... accruals or cash)
2. Is it (definitely) finance or, is it a lease (doubtful with the figures given)
3. What CAs have been claimed (shouldn't affect the answer but may explain the question)?

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By fawltybasil2575
18th Jun 2022 10:31

@ Dave_ BSI (OP).

In intending no offence, implicit in your question is that the KEY factor in determining the best date to repay the loan is the taxation factor. In that respect, your logic is flawed; and in reality your question is no different in principle from a client’s asking their advisor whether they will receive tax relief on (say - as one of numerous possible examples) advertising costs of £1,000. The answer of course to that question would almost invariably be “yes”. However, any professional advisor, upon receiving such a question, should immediately say words to the effect of:-

“ OK, I shall answer that question, BUT I should point out that my answer is purely academic and in truth you should be asking the following different question . . . ”.

Hence, the correct answer for you to give your client is:-

“This is my answer to your direct question, BUT whilst that answer may result in your tax liabilities being (say) £150 less than they would otherwise be, you would be £375 worse off as regards the total monies which you pay to the finance company, and therefore overall you would be £225 worse off”.

Frankly, there is in any event insufficient information in your question to determine with 100% certainty whether, purely from a taxation perspective (of very limited significance as explained above) the loan is best paid off in the current accounting period or the next accounting period. If the client’s business is a sole trader (or partnership) then one can only (on the limited information which you have supplied) advise with 70% probability which alternative is the more tax-efficient – if the client’s business is a company then one can only be 90% certain that the advice given will be correct.

The respective resultant 30%/10% factors are crucial, and one would possibly need to determine, inter alia, the taxable profits (estimated if necessary) for at least two accounting periods, the other income for two tax years and possibly other factors: without that information, attempting to provide an answer to your question is impossible.

I assume, from your question, that whilst you are responsible for the book-keeping for your client, you are not also the accountant; and hence, if so, your question must be addressed to that accountant, who will, or certainly should, be able to provide a definitive response [after raising a few questions with you and the client, and very probably making further enquiries (directly or indirectly) with the finance company as to how the early settlement figures are calculated].

Basil.

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