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bigduckontax
bigduckontax, Accountant
Category: Tax
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I'm a sole trader. I need to buy a new van business.

Resolved Question:

Hi. I'm a sole trader. I need to buy a new van for my business. I want to loan the business the money from my personal savings. Will the repayments to me be tax deductable? Is this better than getting a loan from an outside body - is that tax deductable?
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
Hi. I pressed the wrong button on urgency - I have to make a decision on the van tomorrow morning, so would appeciate a response this evening if possible. Thank you.
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of thr experts on Just Answer, and pleased to be able to help you with your question. There are basically two sides to your question. Firstly the purchase of the van. This will entitle the company to capital allowances (CAs) and under the Annual Investment Allowance (AIA) you can write off the entire cost as plant and machinery (this definition is much wider than its name suggests) in the year of purchase. A van is not a car for CAs, indeed, I had a client who bought a motor caravan on his business and that was not classed as a car by the Inland Revenue, as they were then! If, to finance this transaction, you loan the company a sum of money then the repayment of such a loan is outside the scope of taxation. If the company pays you any interest on the loan then this is taxable in your hands as income (the company will deduct tax at the basic rate under the CT61 procedure) and conversely that interest will be allowable against the company's Corporation Tax (CT) computation. If you take a loan from an outside body then any capital charges and interest paid will be allowable, but the finance and interest costs will almost certainly outweigh financing on a self help basis. I hope that I have solved your conundrum in good time.
Customer: replied 1 year ago.
Hello Keith. Thank you. Yes I think that answers my question very well - just to make sure I understand, if I pay £7,000 for the van it is cheaper to fund it from my own savings (which currently receive approx 1% interest) than to take out a loan from an outside body. Is that what you are saying? As a subsiduary question, I have to pay VAT on the van (£5,999 plus VAT) but am not VAT registererd. Can I retrieve the VAT in any way? And lastly, over the past 2 years that I have run my business, I have had to put in money from my savings to maintain the business. Should this have appeared in my tax return and if so is it too late to tell the Inland Revenue now for last 2014/15 year and reclaim tax paid? Thank you.
Expert:  bigduckontax replied 1 year ago.
Yes, self funding in the current low interest environment will almost certainly be the cheaper option. If the van costs you 7K including VAT then, as your company is not registered for VAt, the van goes into the company's books at the gross amount and AIA claimed accordingly. The moneys you have put into the company over the years should have been entered in the company's accounts as loans to the company which can be repaid at some future indeterminate date. These do not have to be declared in your tax return, the only items which would have to be declared is any interest paid by the company to you on such loans. Just one small point, the Inland Revenue ceased to exist some years ago on amalgamation with HM Revenue and Customs to form HMRC. Please be so kind as to rate me before you leave the Just Answer site.
Expert:  bigduckontax replied 1 year ago.
I have mislead you by referring to your trading orgnisation as a company. The principles remain the same though excepting that you cannot pay interest to yourself, obviously!
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Customer: replied 1 year ago.
Thank you Keith. That is all really clear and valuable. With best wishes, Jenny B
Expert:  bigduckontax replied 1 year ago.
Delighted to have been of assistance, Jenny. Sorry about the earlier misunderstanding on my part; I must be getting old! Thank you for your support.