AIA, Loss in the Year and Purchase of Van

[steven123]

Hi,

In short my accountant made a pigs ear of 08/09 tax return (somehow found £20k of additional income from nowhere and did not take of all expenses incurred). So looking to submit an amendment to HRMC.

In the year 08/09 a van was purchased in the year and written off 100% using AIA. I was wondering, in the amended tax return calculation if it was possible not to use the AIA but write down the van (purchased new and on loan finance for sole business use) at a lower rate spread over the years.

The projected profit for the year is just going to be in the red if the full 100% AIA is used. If I write down at 40% (or whatever appropriate rate is) then I will be just in the black but under the personal allowance as a sole trader.

Or is it not worth the hassle and just leaving as is with the full cost of the van written off? Especially as 09/10 is going to come out as a loss. The van is unlikely to be sold off in 2010/11

[Jaydee]

The projected profit for the year is just going to be in the red if the full 100% AIA is used. If I write down at 40% (or whatever appropriate rate is) then I will be just in the black but under the personal allowance as a sole trader.

So, unless the loss is useful to you (maybe to offset against other income, or to carry back to a profitable year, or to offset against earlier non-trading earnings if 08/09 is one of your first years of trade), you should consider not claiming the allowance at all as any reduction in taxable profit from the personal allowance threshold downwards is wasted.

[steven123]

So, unless the loss is useful to you (maybe to offset against other income, or to carry back to a profitable year, or to offset against earlier non-trading earnings if 08/09 is one of your first years of trade), you should consider not claiming the allowance at all as any reduction in taxable profit from the personal allowance threshold downwards is wasted.

There is no other income to offset in past couple of years - only income is from self employment. So could I choose not to claim any capital allowances on the vehicle, presumably this is beneficial when it comes to selling the vehicle, as I would not be paying tax on the sale proceeds/trade in value.

I am presuming if I do not claim allowance then I will not be able to do so in subsequent years - this would not be a problem because 09/10 is a loss anyway, but 2010/11 will hopefully be profit.

I will look back to previous years to see if I can carry back (am I correct in thinking I can do this for 3 years).

[taxattack]

There's usually no point claiming CAs if they reduce income below the personal allowance. AIA is only available in the year of purchase; in later years an allowance of 20% (or less at your discretion) of the reducing balance can be claimed.

Best to include the van in its own short-life pool to obtain relief via a balancing allowance if it is sold within 4 years (unless there is any private use in which case it must in any case be in its own pool).

Chris