Thank you for your question..
Although you have been offered £7,500 for your car, as business use is only 50% the balancing charge will be 50% of the trade in value only ..
If you were to replace it with another vehicle, you would show both balancing charge and capital allowance in the same set of accounts so your profit would be reduced by net capital allowance on the vehicle.
As you are doing relatively low business mileage you may be better off claiming capital allowance and running costs of the vehicle as opposed to 45p per mile mileage claim.
Whether you bought a car outright or on PCP accounting treatment would be the same. You would have to look at absolute values to see what impact it has on your net income but the process and principle is the same.
More information on capital allowances on business cars can be found here
I hope this is helpful and answers your question.
If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.
Thank you for your reply.
If you were to replace your vehicle then in the same set of accounts you will show
- capital allowance on the replacement car
- balancing charge on car traded in
You will be deducting from your profit writing down allowance every year and not adding to your profit
In the first year of replacement , you would take full amount and not pro rate the amounts.
More information on capital allowances and balancing charges can be found on helpsheet 252 here
Would I be adding the difference to my profit for the year - and does that affect Working Tax Credit income figures?
Capital allowance would reduce your income for working tax credit calculation.
My understanding is you are offer £7,500 as part exchange for another car. This normally happens at the same time. ..correct me if I am wrong.
Increase of income by £3,750 is not going to make a lot of difference on working tax credit figure.. you can check it by using the calculator herehttps://www.gov.uk/tax-credits-calculator
I hope this is helpful.