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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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.
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 ...
When the OP says that "the expenditure was incurred during the 31 March 2021 period", I take them to mean that.
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.
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?
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?
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.
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.
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.
The "brought into use" requirement is relevant, IIRC, only for assets acquired under HP etc and for pre-trading expenditure.
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.
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").