Capital Allowance Calc Sole Trader Final Return

Should we include Capital Allowance Profit offset in Sole Traders Final Return?

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Following two separate injuries a Sole Trader IT engineer decided to close the business on 1st August 2019. He worked for a period of 4 months 1April-31 July 2019. Due to unfortunate circumstances because of COVID the normal accountant who previously did the books, is not available to complete the 2019/20 Profit and Loss accounts and tax return.

Between us, following previous years returns, we have manged to complete the Profit and Loss account resulting in a trading loss of -£44 for the period. However the accountant previously submitted a Capital Allowance figure in the tax return to HMRC.

The Capital Allowance is based solely on a private car used primarily for business but also for some social journeys. There is no plant or equipment. The sole trader intends to keep the car and not dispose of it.

Unfortunatly we do not know how to calculate the claim for this year or if to even include it.(as the business made a loss this would be to HMRC detriment as it further offsets profit. Last years(2018/19) figures are:-

WDV/BF £12,936

Disposal £13,541

Addition £15,776

WDA 18% £2,731

Personal Use £2,048

Claim This year £683

WDF C/F £12,440

I think the WDA is the write down percentage but have no idea where the Disposal and Addition or Personal Use figures are or how they are calculated.

My question is. Do we in fact need to include a Capital Allowance claim in the tax return at all? I am unclear as have read on these Q&A forums where a "balancing" figure has to be used but dont know what that means or how to use it. I have also read that the 18% is for a full year so has to be pro-rata'd for the short return period 3/12 x 18% ??? For information the cars current value is between £9350 and £9,842

As this is the final return and want to ensure HMRC are happy, any guidance would be appreciated

Replies (19)

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RLI
By lionofludesch
08th Jan 2021 16:14

Well, imho, the computation is wrong. As this was (or ought to have been) a single asset pool, there should've been a balancing charge on the old car. However, the difference is small and we can ignore it.

What you need to do is put a value on the car at the date of cessation. Compare that with the £12,440 wdv. You'll likely have a loss. Disallow ¾ of that as private and claim the other ¼ as a deduction.

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By SteveHa
08th Jan 2021 17:32

Are you sure you have the figures the right way around? 75% PU for a taxi that is "primarily" used for business does not suggest "primarily".

Notwithstanding that, yes, you need to calculate the balancing allowance/charge.

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Replying to SteveHa:
RLI
By lionofludesch
08th Jan 2021 17:42

SteveHa wrote:

Are you sure you have the figures the right way around? 75% PU for a taxi that is "primarily" used for business does not suggest "primarily".

Notwithstanding that, yes, you need to calculate the balancing allowance/charge.

Taxi ? You're on the wrong thread, Steve.

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Replying to SteveHa:
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By SoalTrader
08th Jan 2021 19:40

Thank you but the car was already owned as a private vehicle when starting the business and was changed about half way through to something with a bigger load space. As a second car was available the car in question was primarily used for business. Our problem is how to calculate the balancing charge as we dont know where the figures are derived from other than the 18% which is found on several websites

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Replying to SoalTrader:
RLI
By lionofludesch
08th Jan 2021 21:01

SoalTrader wrote:

Thank you but the car was already owned as a private vehicle when starting the business and was changed about half way through to something with a bigger load space. As a second car was available the car in question was primarily used for business. Our problem is how to calculate the balancing charge as we dont know where the figures are derived from other than the 18% which is found on several websites

Why are you only claiming 25% if most of the mileage was business? It's a fair question.

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By Wanderer
08th Jan 2021 17:35

Member Since: 8th Jan 2021
SoalTrader
Village IT Services

Why have you written all this in the third person?

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By Tax Dragon
08th Jan 2021 17:48

An IT sole trader with no equipment, no accountancy fee* and a £44 loss (before capital allowances).

I know we have to take what we're told at face value, or get a rebuke, but I'm struggling to comply with that instruction.

*This bit I believe.... based on the number of them ask questions like this in here, IT folk never use accountants.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
08th Jan 2021 17:51

I'm wondering if there is a "DIO" missing from the profile description?

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Replying to Wilson Philips:
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By Tax Dragon
08th Jan 2021 17:53

Even they have equipment. (Bells? Or am I getting confused?)

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Replying to Tax Dragon:
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By Wanderer
08th Jan 2021 18:01

Tax Dragon wrote:

An IT sole trader with no equipment, no accountancy fee* and a £44 loss (before capital allowances).

Willing to spend £15,776 on a car though.
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Replying to Wanderer:
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By SoalTrader
08th Jan 2021 19:50

As referred to above the car was already owned on startup of the business

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Replying to Tax Dragon:
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By SoalTrader
08th Jan 2021 19:49

The business DID have equipment but none of it of a value that the accountant thought it should be included in capital allowance. An accountancy fee of £240 Pa was paid for the Profit and Loss calculation and HMRC submission each year. It was not include here as it's in the full profit and loss accounts. As outlined the the loss resulted in only three pieces of work being done in 2019/20 due to personal injuries with a total income of £890 . As also explained the accountant used every year is not available due to catching Covid.

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Replying to SoalTrader:
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By Tax Dragon
08th Jan 2021 23:43

SoalTrader wrote:

The business DID have equipment but none of it of a value that the accountant thought it should be included in capital allowance.

It's more likely that capital allowances have been claimed for the entire cost of the equipment (leaving no WDV still showing). So you need a value for that equipment (as well as for the car) at 1 August 2019. The first reply tells you how to work out the balancing allowance on the car; there'll be a balancing charge on everything else (which I would take as being simply its 1 Aug value).

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By SoalTrader
08th Jan 2021 20:02

We came here in almost in desperation in the hope that someone might assist us with a problem. Only one person lionofludesch has had the decency to respond to the question without taking swipes at the OP without knowing the full facts.
We are more than happy to provide additional information and clarification if asked.

Having said that some of the comments have made us realise what the Addition and Disposal figures relate to. I assume Disposal is the sale of the original vehicle included when the business was started and Addition is the purchase of the replacement? So we are a step nearer understanding the figures.

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Replying to SoalTrader:
Psycho
By Wilson Philips
08th Jan 2021 20:36

I think the clarification required is whether you are an accountant or the trader. Your questions strongly suggest the latter.

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Replying to SoalTrader:
RLI
By lionofludesch
08th Jan 2021 21:03

SoalTrader wrote:

We came here in almost in desperation in the hope that someone might assist us with a problem. Only one person lionofludesch has had the decency to respond to the question without taking swipes at the OP without knowing the full facts.

Fair to point out that withholding facts, even if you don't think they're relevant, can lead to an incorrect answer.

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By SoalTrader
08th Jan 2021 22:51

I help the Sole trader with his bookwork. I am not a trained accountant I just keep the records and help prepare the paperwork for submission to the accountant. I am posting this question on his behalf.
I tried to lay out the facts so that someone might be able to assist and have not held anything back intentionally and was happy to supply any further information required.
I assumed, perhaps incorrectly, that If I stated the figures submitted by the accountant the previous year it would assist in that regard. Unfortunately we do not know what they relate to and how they are calculated.

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Replying to SoalTrader:
RLI
By lionofludesch
08th Jan 2021 23:19

They're explained in the first reply.

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By Paul Crowley
09th Jan 2021 20:14

Let the return go in late and appeal the £100 penalty
Leave it to the accountant to get it right
He knows the history and will get it right

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