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If my ltd company buys an ultra low emissions vehicle

Resolved Question:

If my ltd company buys an ultra low emissions vehicle Mitsubishi PHEV I understand I can offset the whole purchase amount in 1 year whether the company paid outright or are paying over 2 to 4 year?
Does this mean that we can also deduct the monthly payments in year 1, 2, 3 4 etc? Am confused on this as have been given differing answers.
Does the FYA still apply if the car is bought with a bubble end payment deal?
Submitted: 9 months ago.
Category: Tax
Expert:  bigduckontax replied 9 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Capital Allowances (CAs) on cars is rather complex these days and largely depends upon the emissions rating of the vehicle. If you look here you can determine the tax treatment:

https://www.gov.uk/capital-allowances/business-cars

and if the vehicle complies then a total write off against income is available in year one. You can forget about monthly payments in later accounting years.

How and when you actually pay for the car is irrelevant. The CA is available in the year of acquisition.

I do hope that I have cleared the air for you in this matter.

Customer: replied 9 months ago.
You say I can forget about the monthly payments? What do you mean? I have to account for them in the years they are paid out as expenditure. Are they tax deductible in future years or not?
Expert:  bigduckontax replied 9 months ago.

Oh yes, you have to account for them, but they do not affect future years profits as the CA kicks in at the date of acquisition for the full amount. That's why I said to forget about them as they do not affect your profit profile. They would be held in suspense as creditors. The car itself would be a fixed asset in your books.

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Category: Tax
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Experience: FCCA FCMA CGMA ACIS
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Customer: replied 9 months ago.
Sorry either I'm not getting it or you're not explaining it.Year 1 purchase price = £25,000. This goes through in year 1 accounts as a -£25,000 CA.
Year 2 I pay out £300 per month for the HP, does that go as an acceptable business expense?
Expert:  bigduckontax replied 9 months ago.

Always remember that CAs have little or nothing to do with profitability, but merely skew the taxation position.

The CA goes through on acquisition as you surmise. The book keeping postings would be Debit Motor Vehicles and possibly Finance Charges and Credit Bank/Cash and Creditors as appropriate. The GBP 800 a month is posted as Debit Creditors, Credit Bank/ Cash. It is not an acceptable business expense for tax purposes. You have already received this through the CA system. The acquisition of capital items does not affect the profit levels at although the application of CAs does.

Thank you for your support.

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