Calculate car HP loan interest for Tax return

[kellycomputerservices]

Hi everyone,

I need to calculate how much interest I've paid on my car HP finance loan for my Tax return, and I wonder if anyone would be so kind to help me out?

I have the original loan agreement, with a breakdown of; cash amount, hire purchase charges, acceptance fee, purchase fee, APR and interest rate etc.

The amount of credit was £6054.50
Hire purchase charge is £2171.87
Acceptance fee is £150.00
Purchase fee is £85.00
Total charge for credit = £2406.87

APR = 14.9%
Interest 12.53% per annum

This was a 60 month agreement.

I understand that interest is calculated on a sliding scale, but it hurts my brain to try and figure this out.

How do I figure out how much I paid during 08/09 tax year?

(I am awaiting a statement from the finance company to show me what's been paid/still outstanding)

Thank you so much.

Keith.

 

[CNEO]

To keep things simple, average out the finance charges over 60 months and take the pro rata amount.

Strickly speaking the interest charge is higher to start with and then reduces as the balance is cleared down. If you wish to do this you can apply what is called the Sum of Digits method

This is an expanation for a straight rental but the same applies to finance leases.

"It involves establishing, at the inception of the lease, the number of rentals that are payable and calculating the sum of the digits. For example, if there are 10 rental payments then the sum of the digits is 1+2+3+4+5+6+7+8+9+10 = 55. For long lease periods it is best to use the formula:

• • sum of digits = (n (n+1))/2
    
    where n is the number of rentals. The finance charge can then be allocated to accounting periods using the following formula:
    
    Number of rentals remaining/total number of rentals x Total finance charge = Finance charge for period
    For example, in the first year the finance charge will be (10/55) x
    
    5000 =
    
    909, in the following year it will be (9/55) x
    
    5000 =
    
    818, and so on. This assumes that the rental payments are made in arrears. If the payments are made in advance of the accounting period to which they relate, then the sum of the digits at the inception of the lease in the example will be 45. The finance charge in the first year will be (9/45) x
    
    5000 =
    
    1000 and so on, and no finance charge will arise in the final year of the lease term."

I hope it helps!

 

[CNEO]

To keep things simple you could simply pro-rata the finace charge over the 60 months (divide by 60 then multiply by the number of months in your tax period). This is fine for your personal tax return but company accounts will require a more detailed calculation.

 

[KidsBeeHappy]

In the old days we used "sum of digits". So, you add up all the numbers between 1 and 60, and that gives you your base number. Then each year you add up the number of repayments made, working backwards, so if there are 12 repayments in the first year you add up the digits 60 to 49. (second year is 48 to 37 etc)

Then you divide the second number by the first number.

 

[KidsBeeHappy]

There is a depreciation sum of digits calculator here, but if you use it for interest it will work the same. Use your total charge for credit amount as the cost. http://freeonlinecalculator.net/calculators/financial/depreciation-sum-of-years.php

Remember to add £150 to the interest for the acceptance fee, as that is a YR1 cost.

 

[kellycomputerservices]

Boxby, that website works great, and the Excel formular SYD is just what I needed.

I was just doing a spreadsheet as per your previous post, and I got close to the numbers that his calculator came up with.

Thanks for your excellent help. I can now box this off on my return - many thanks!

Keith.

There is a depreciation sum of digits calculator here, but if you use it for interest it will work the same. Use your total charge for credit amount as the cost. http://freeonlinecalculator.net/calculators/financial/depreciation-sum-of-years.php

Remember to add £150 to the interest for the acceptance fee, as that is a YR1 cost.

 

[kellycomputerservices]

How would I work out how much interest is owed on the total borrowed amount? When I use online calculators, or my own spreadsheet, I can't figure out how they have come up with their total amount of interest.

I have borrowed 6054.50 at an interest rate of 12.53% per annum over 5 years.
Would I be correct by dividing the total credit borrowed by 5 years (1210.9) to give me my yearly payments. Then work out interest on amount owed, ie. yr1 = 6054.5*12.53%, yr2 = (6054.5-1210.9)*12.53% etc etc for 5 years, then add up all the interest.

Thanks.

 

[Zeno]

For accounting purposes this would be so much simpler to do pro rata and HMRC will not care one way or the other.

Life (and the submision window) is too short.

Remember to restrict the interest for the private use element.

 

[David Griffiths]

For accounting purposes this would be so much simpler to do pro rata and HMRC will not care one way or the other.

Life (and the submision window) is too short.

Remember to restrict the interest for the private use element.

Unless the private use element is less than the deposit!

 

[kellycomputerservices]

OK, thanks guys - much appreciated. I understand it all now. I'm happy to call this SOLVED

Cheers.

 

[kellycomputerservices]

Hi Guys,

Just another question. My accountants filed my tax return last year, and I'm trying to work out their figures so I don't claim something that's already been declared.

I have a print out of nominal activity from last year, but I can't work out how they've come up with their figures - can anyone help???

Bearing in mind the figures I've told you already in my first post.

I pay £148.41 each month for my car repayments. When I bought the car, I paid £158.98 for the first month - this was the purchase fee of £150, and £8.98 is my GAP insurance.

The accountant has recorded the following:

HP repayments paid privately - 2236.72
HP > 1 year - 3769.85

The first payment I made for £158.98 was on 15/05/06. I didn't start business until 14/02/07

I have figured out that "HP repayments paid privately" = £158.98 (purchase fee) + £148.41*14 (15/02/07-15/03/08 the time since I started trading until end of tax year 08, which I guess makes sense seeings as I didn't claim any of this in my 06/07 tax return).

However I do not see where the "HP > 1 year" came from. If I have paid 2236.72 already whilst I've been trading, that leaves me with another 5650.15 (as of April 08).

Also, based on these figures, they've come up with a value of 589.66 as HP interest. I can't work this out either using the sum of digits depreciation or loan amorization calculators.

I will probably have to speak to my accountants direct, but in the meantime if anyone has an understanding of what they've done here I would appreciate your advice.

Thanks.

 

[kellycomputerservices]

It's ok, I got a breakdown from the accountant and I see they've used different dates, and rather than the sum of digits method, they've simply divided by 60 and 12 (pro-rata method). I am going through this now to figure it out, and posting corrections using the correct dates, and sum of digits method - this way I can stay on top of it.

Thanks.

 

[Zeno]

Is business really that slow Kelly?

 

[kellycomputerservices]

Is business really that slow Kelly?

Lol

Well with Tax Return deadline looming, this has become my no.1 priority (actually my clients are my no.1 priority, so this is 2nd)!

It's difficult trying to understand these numbers between support calls, but I'm thankful a lot of my work is done remotely. I'm just glad I'm intelligent enough to understand these figures!

 

[kellycomputerservices]

Is business really that slow Kelly?

Oh, and it's Keith, not Kelly. (Kelly is my surname)

Thanks.

 

[Williams lester]

Lol

Well with Tax Return deadline looming, this has become my no.1 priority (actually my clients are my no.1 priority, so this is 2nd)!

It's difficult trying to understand these numbers between support calls, but I'm thankful a lot of my work is done remotely. I'm just glad I'm intelligent enough to understand these figures!

So, would it really not have been worth using an accountant to prepare and submit your tax return, given the time you have spent posting questions about it on this forum?

 

[kellycomputerservices]

So, would it really not have been worth using an accountant to prepare and submit your tax return, given the time you have spent posting questions about it on this forum?

No! As a businessman it is my responsibility to understand my business and accounts, and it is far more adventageous for me to file the return so that I understand how my business is performing, and also so I can keep atop of my books. Whilst an accountant may save me time in the short term, for this tax return year they won't be able to save me money.

Thanks.

 

[kellycomputerservices]

One last question. If on my last tax return not enough interest was claimed as a result of an error by my accountnat, is it ok to claim the remaining unclaimed portion from last year this year (as well as this years interest)? There's a few hundred pounds difference as they calculated interest from the wrong start date, and as such not enough was claimed.

Thanks.

 

[Zeno]

One last question. If on my last tax return not enough interest was claimed as a result of an error by my accountnat, is it ok to claim the remaining unclaimed portion from last year this year (as well as this years interest)? There's a few hundred pounds difference as they calculated interest from the wrong start date, and as such not enough was claimed.

Thanks.

As I understand it, they calculated the interest from when you commenced trading. If not, then you can adjust it in this year.

I must say I strongly disagree with your last post. Dave was exactly right in my opinion. If you did not have this forum as a resource would you still be preparing you own return?

 

[kellycomputerservices]

Thanks for the accountancy advice - they calculated the HP finance incorrectly, so this puts last years figures out. What DID suprise me was that they claimed for interest payed BEFORE I commenced trading - is this allowable? They claimed from 01/01/07 - 05/04/08. I didn't commence trading until 14/02/07, and I never claimed any interest in my first return. They have taken 01/01/07 as the date I took out the HP finance, but in actual fact it was 15/05/06. So if I'm allowed to claim back to when I bought the car, and not when I started business (which I don't think I am), then there is more interest to claim than they claimed last year.

I hope that makes sense.

I must say I strongly disagree with your last post. Dave was exactly right in my opinion. If you did not have this forum as a resource would you still be preparing you own return?

That's fair comment, but without going way off topic, I am someone who likes to learn and better oneself. A resource such as UKBF is a tremendous asset to anyone in business, and has been infinately helpful to me in preparing my accounts for my tax return, as well as other matters.

If such a resource didn't exist (and that is a daft comment, as this is exactly why it does exist, for questions such as mine etc for the business community), I would have found advice elsewhere (businesslink etc), and yes perhaps inevitably my accountants, but I do not want to become dependant on an accountant - I'm not useless or lazy, I have a great understanding of what is required of me in order to complete a return, and I just want to take on the challenge of the return myself. UKBF is here to help me and others alike with their business questions. We all start somewhere, and our levels of ability may differ, but I don't see why someone else should pass comment on ones descision to better oneself, and increae a skill set and desire to learn.

Oh, and the fact that yes, business isn't great at the moment and money is tight - I'd rather not pay an accountant where it isn't necessary, the same as I wouldn't pay for a stamp if I could hand deliver.

I hope that makes sense, and it may not resemble other peoples opinion or attitudes, but that is who I am, and what I'm about. Just fighting my corner, and isn't to be taken in offence or as a hostile response.

Thanks guys.

 

[Zeno]

No, of course not. You entitled to your opinion but we are simply suggesting that there may be more productive avenues for you to focus your attention.

Is an in depth knowledge of the self assement system going to be an asset to you? In a few years you may decide a ltd co. is the way forward and then you will have to learn an entirely new set of rules.

I could save myself some cash and better myself by learning how the fix my own computer but it would not really be a great business decsion for me. In the time it took plus the learning curve and inevitable botches I could just have paid someone like you to do it while i focus on spouting tax.

 

[kellycomputerservices]

Yes you are right, I just have that attitude to things though - always have, and always will. I do completely agree that it's not always best to do things yourself. It may take me a day to sort this tax return, but a day of WORKING would earn me more money than it would cost to pay an accountant - it's just I like to know exactly whats going on, why etc. It's not always a great personal attribute, and it's not always good for business, but there you go! pobodies nerfect.

I DO appreciate your input, and advice. I know no-ones having a go at me - it's just constructive critiscism, sometimes the best form of advice someone can be given, so I thank you all.

Cheers Zeno and others!

Are you able to offer me the last piece of advice to complete the puzzle RE: back claiming interest as of my last post? Thanks.

Gung-ho Keith ;p

 

[Zeno]

Sorry, overlooked that. No, I would only claim the interest from when you started to trade. Remember to restrict it for private use.

 

[kellycomputerservices]

Sorry, overlooked that. No, I would only claim the interest from when you started to trade. Remember to restrict it for private use.

I thought as much - thanks for that, and I will do!

Thanks again Zeno, it's been nice deliberating with you!

All the best my friend.

Keith.