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Driving Instructor - Self Assessment Query

Treatment of dual control car for tax purposes

Hi 

I am helping a friend to complete his self assessment form.

In 2017-18 he traded for two months (Feb and March 18). They have a car on a PCP finance arrangement which has a balloon payment of £4k.

I need some advice on how to proceed with treating the car. 

I know I can claim AIA on the car in the first year. I take it this would be restricted as the car was only in use for two months of the year?

Thereafter I can claim 18% a year of the cars value in capital allowances. How does the balloon payment affect the carrying value I need to use? Can I use the cost including the balloon payment of £4k or use the cost less the £4k balloon payment (to avoid a balancing charge at the end of the lease period)? 

Thanks in advance for your help.

 

Replies

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11th Dec 2018 21:01

For what reason are you restricting the AIA?

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By DUFCFan
to Tim Vane
11th Dec 2018 22:14

Thanks for replying Tim.

Two reasons :

1. The short accounting period for year 1 (2 months trading)

2. He's making very little profit .

Could I use 100% of the AIA in year 1 and use the resulting difference as to relieve against future profits ? If so are there any limitations to how this relief could be used in future periods?

Thanks (0)
to DUFCFan
12th Dec 2018 01:20

Reason 2 may be a valid one but there is no way of knowing from the info given. Depending upon the financial circumstances of the individual and the quantum of the income it may be better to (a) claim 100% AIA, or (b) claim no capital allowances at all, or (c) anything in between. You really have to look at the entire picture, not only for the current year but also regarding previous years and future plans. As mentioned by other posters it could be very costly to recommend an option without being in possession of both the full facts and the requisite knowledge.

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to DUFCFan
12th Dec 2018 08:04

DUFCFan wrote:

Could I use 100% of the AIA in year 1 and use the resulting difference as to relieve against future profits ? If so are there any limitations to how this relief could be used in future periods?

You could but then you'd have losses carried forward which you must use against the first available profits. As the guy makes little profit, it's likely that some - maybe all- of the allowance wouldn't lead to any tax reduction.

And then there's the issue of whether he can use the 2017/18 personal allowance against whatever other income he has in that year.

Massive personal allowances might look great on Budget Day but they're no good to low earners.

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to DUFCFan
12th Dec 2018 08:05

DUFCFan wrote:

Two reasons :

1. The short accounting period for year 1 (2 months trading)

2. He's making very little profit .


2 is valid. 1 is not.
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11th Dec 2018 22:21

DUFCFan wrote:

I am helping a friend

You can only help someone if you have sufficient knowledge. If you don't have that and then take "advice" from internet randoms, you may drop your friend in the proverbial.

If your friend needs advice, best take it from someone who can sit with them and understand them and their business sufficiently to give the proper professional support that they need. These things are far too important to rely on well-meaning but underqualified friends.

Thanks (1)
to Accountant A
11th Dec 2018 22:40

Far from being: the A typical Aweb answer, this is an; honest and sincere reply.
Accept it, for what it is and, back off, from “helping” your friend and suggest that he seeks suitably “qualified” and, paid for, advice. It’s the best favour you can provide.

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