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FYA's on electric car

Bought on final day of accounting period and not used until the next day

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Sole trader has a 31 March year end. Bought (not under finance) an electric car on 31 March 2021. Didn't pick it up until the next day (1 April 2021), and then used for a business trip the next day (2 April 2021). Didn't use again for a week or so.

He's hoping for 100% FYA for the 2020/21 income tax year. My view is that, whilst the expenditure was incurred during the 31 March 2021 accounting period (2020/21), there was no actual business use (nor any private use either) and so any FYA claim needs to be restricted to £NIL. Is this correct? Or do HMRC look at the 'likely/intended use'? Options may be to not claim until the following period (WDA's) or extend the accounting date to 5 April 2021?

Thanks for any clarification.

Replies (24)

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By The Dullard
07th Jun 2021 14:15

That's not the test. The test is whether the expenditure is (to any extent) incurred for the purposes of the qualifying activity. And it is.

Allowances are then restricted to the extent that there is any use other than for the qualifying activity in the period. There isn't any for this period.

So, in my view your client does have an unrestricted 100% FYA in 2020/21.

I think though that it is then hard to justify any restriction for private use to the balancing charge that there will be on disposal.

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Replying to The Dullard:
Psycho
By Wilson Philips
07th Jun 2021 14:41

That may be correct. An important missing piece of information is the date on which the client paid for the car. There is an assumption that payment was made (and was required to be made) before 1 April 2021. If not ...

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Replying to Wilson Philips:
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By The Dullard
07th Jun 2021 14:48

When the OP says that "the expenditure was incurred during the 31 March 2021 period", I take them to mean that.

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Replying to The Dullard:
Psycho
By Wilson Philips
07th Jun 2021 14:54

Yes s/he did - and that is the assumption that I was referring to. But since s/he didn't understand the relevance of "use/intended use" it follows that s/he might not understand the rules around date of incurring expenditure. I think that before I gave a definitive answer I'd like to know the date on which the expenditure was actually incurred, for capital allowance purposes.

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Replying to Wilson Philips:
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By Software Seeker
07th Jun 2021 16:21

Wilson Philips wrote:

Yes s/he did - and that is the assumption that I was referring to. But since s/he didn't understand the relevance of "use/intended use" it follows that s/he might not understand the rules around date of incurring expenditure. I think that before I gave a definitive answer I'd like to know the date on which the expenditure was actually incurred, for capital allowance purposes.

The date on which the obligation to pay became unconditional was 31 March 2021.

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Replying to The Dullard:
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By Software Seeker
07th Jun 2021 16:16

The Dullard wrote:

When the OP says that "the expenditure was incurred during the 31 March 2021 period", I take them to mean that.

Yes, the expenditure was incurred on 31 March 2021.

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Replying to Wilson Philips:
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By Software Seeker
07th Jun 2021 16:14

Wilson Philips wrote:

That may be correct. An important missing piece of information is the date on which the client paid for the car. There is an assumption that payment was made (and was required to be made) before 1 April 2021. If not ...

Contract dated and car paid for on 31 March 2021. Apologies I wasn't clear on that.

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Replying to The Dullard:
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By Software Seeker
07th Jun 2021 16:13

The Dullard wrote:

That's not the test. The test is whether the expenditure is (to any extent) incurred for the purposes of the qualifying activity. And it is.

Allowances are then restricted to the extent that there is any use other than for the qualifying activity in the period. There isn't any for this period.

So, in my view your client does have an unrestricted 100% FYA in 2020/21.

I think though that it is then hard to justify any restriction for private use to the balancing charge that there will be on disposal.

Thanks. That makes sense. Point noted about the resultant balancing charge.

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Replying to The Dullard:
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By I'msorryIhaven'taclue
07th Jun 2021 16:40

The Dullard wrote:

Allowances are then restricted to the extent that there is any use other than for the qualifying activity in the period. There isn't any for this period.

Would that have produced an unhappy outcome (of 100% p.u. restriction) had the client driven say 1 mile to his local shop on a personal errand, and 0 business miles?

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Replying to I'msorryIhaven'taclue:
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By frankfx
07th Jun 2021 17:07

I'msorryIhaven'taclue wrote:

The Dullard wrote:

Allowances are then restricted to the extent that there is any use other than for the qualifying activity in the period. There isn't any for this period.

Would that have produced an unhappy outcome (of 100% p.u. restriction) had the client driven say 1 mile to his local shop on a personal errand, and 0 business miles?

Would checking one's eyesight and fitness to drive be business or personal?

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Replying to frankfx:
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By unclejoe
09th Jun 2021 10:38

I guess if you only used your eyes at work and kept them firmly closed at all other times then you could claim the cost of an eye test as a business expense, but somehow don't think this argument would wash with HMRC! You might get away with arguing that you work 365days, 24 hrs a day (except when sleeping and eyes closed then anyway), which is perfectly believable if you are an accountant at present.

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Replying to frankfx:
By SteveHa
09th Jun 2021 15:30

Ahhh - The Cummings argument.

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Replying to I'msorryIhaven'taclue:
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By The Dullard
09th Jun 2021 15:41

You make a good point. Apportionment should be based on the extent of the business (and private) purpose for incurring the expenditure. See CAA 2001, s 205 and CA27005.

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Nigel Harris
By Nigel Harris
09th Jun 2021 11:44

My recollection is that ownership of an asset if the requirement for FYAs, so an invoice or unconditional contract dated in the year is sufficient. WDAs on the other hand require an asset to have been "used" in the business, thankfully not an issue in this case but would be relevant for a non-electric car.

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Replying to nigel:
Psycho
By Wilson Philips
09th Jun 2021 13:22

The "brought into use" requirement is relevant, IIRC, only for assets acquired under HP etc and for pre-trading expenditure.

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Replying to Wilson Philips:
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By The Dullard
09th Jun 2021 15:36

Your recollection accords with my recollection.

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By jdm5454
09th Jun 2021 15:14

Doesn't in depend on when he first brought petrol:)

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Replying to jdm5454:
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By The Dullard
09th Jun 2021 15:34

I'm not entirely sure what you're binging to the table.

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Replying to jdm5454:
Morph
By kevinringer
20th Jun 2021 13:17

For an electric car?

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By Software Seeker
15th Sep 2021 19:10

Thanks for all the replies on this.

Am now preparing the CA comps for this client. He has also asked me to forecast the balancing charge going forward so he can plan for his tax liabilities (and maybe look at the option to disclaim the FYA in order to reduce the BC).

Accounts year end is 31 March. The purchase date for CA’s purposes is 31 March 2021, and the cost is £40000.00. There was no private use (as a matter of fact) y/e 31 March 2021. He anticipates 25% private use going forward and then ceasing to trade during the ended 31 March 2023.

My CA comps will be:-

Year ended 31 March 2021:

Expenditure £40000.00
FYA £40000.00 (no PU restriction)
WDV transferred to PU single asset pool £0.00

Year ended 31 March 2022:

WDV PU single asset pool b/fwd £0.00
WDA £0.00
WDV PU single asset pool c/fwd £0.00

Year ended 31 March 2023:

WDV PU single asset pool b/fwd £0.00
Taken out at market value (say) £20000.00
Balancing Charge £20000.00
Less private use restriction (25%) £5000.00 *
Net balancing charge £15000.00

Does this look reasonable, bearing in mind S205(1) and (2) CAA 1990 and HMRC CA27005?

* Alternatively, CA27005 suggests an average taken over the period of ownership of the asset, which in this case would be (0% + 25% + 25%)/3 = 16%. Does this seem more appropriate?

Thanks. Not come across this situation before.

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Replying to Software Seeker:
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By Tax Dragon
15th Sep 2021 20:07

How selective is your reading? Not only have you ignored Dulls's reply to I'msorry, but you've skipped over whole chunks of CA27005.

The allowance in year 1 does have to be restricted for private use.

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Replying to Tax Dragon:
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By Software Seeker
15th Sep 2021 20:43

Thanks as always. Yes I saw Dullard's initial reply and his reply to I'msorry. CA27005 and S205(2) say "likely to be used...". The client had intended to use the vehicle for no private use (he has another car which he uses privately) and in actual fact did not use it as such in year 1. I would have thought this satisfies the "likely to be used" condition, however are you saying that he nevertheless has to make a private use restriction? If so, what proportion (he's still using it wholly for business as a matter of fact)? Subsequently, during year 2 (and after submitting his Tax Return), his financial circumstances change and he puts his private car up for sale (realises he can't afford to run two cars). He anticipates when this is sold that he will start using the new car privately (about 25% PU). Hence the PU restriction starts in year two et. seq.

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Replying to Software Seeker:
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By Tax Dragon
15th Sep 2021 22:31

I think either s205 applies (and requires that the initial allowance be reduced), or, having not so applied, it doesn't apply to reduce the subsequent balancing charge. This view accords with CA27005 (see the bracketed "and so the restriction of the allowances").

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Replying to Tax Dragon:
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By Software Seeker
16th Sep 2021 10:33

Thanks, makes sense (I think).

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