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New van/trade in , tax etc

New van/trade in , tax etc

Hi , I'm a sole trader (paying 40% tax) and bought a van worth 24k plus vat (I'm also vat registered) , when I fist bought the vehicle I got 100% aia capital allowances on it. My question is , that it's just over 3 years old and was thinking of trading it in and getting offered 11 k for it and I was wondering what the vehicles actually cost me .and it's been in the pool/books for 4 financial years . I'm a tradesman and not an accountant and just wanted a little help on this ,

Many thanks in advance Kieron


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23rd May 2012 10:28

Actual cost

... is what you actually paid for the van, excluding the VAT which you reclaimed, so presumably, it was £24K.

As you got AIA on 100% of the cost, it would have been carried forward at nil in your pool of capital allowances at the end of the year in which you bought it.  When you sell it for £11K, that is charged against the pool brought forward and you will have a balancing charge of £11K (assuming no other items in the pool with a balance brought forward), which will be added to your taxable profits for the year in which you trade in the old van.  In short, you will have been allowed to deduct from your taxable profits over the 4 years the difference between the cost to you of the van and what you got for it on trading it in, which seems fair.  You will also get AIA, probably of 100%, of the cost of the replacement van, which will reduce your taxable profits in Year 4. 

For accounts purposes, you may have charged depreciation of (say) 25% of the reducing balance of the cost of the van.  So, in Year 1, the depreciation would have been £6K and the net book value carried forward would have been £18K.  In Year 2, the figures would have been £4,500 and £13,500 and in Year 3, £3,375 and £10,125.  When you trade it in in Year 4 for £11,000, your accounts will show a profit on the sale of £875.  But this does not have any effect on your tax position which is based on the balance in the pool of capital allowances.

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23rd May 2012 17:01

Or tax savings
Thanks still lost though, lol

So how much tax savings would u say I would have had then . Per tax profits would be around 120k a year .

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23rd May 2012 17:56


If you have profits of £120k then you should have an accountant and he should answer this as he knows far more about your business and personal affairs then we do however:-


You paid £24k you received £11k so it cost you £13K before tax.

Tax on £13k @ 40% £5,200

If you do not have an accountant google me and give us a call!

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24th May 2012 17:40

Ok thanks
So am I right in saying then when I buy a new van at 24k 100% tax relief At 40% so 14400 for vehicle and 9600 offset against tax would it work out new vehicles basically only costing me 3400 at the end of the financial year , or am I looking at it the completely wrong way ?

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