Hire purchase

[einarp]

I have purchased a vehicle under a Hire Purhase finance agreement. I'm not sure as to whether I have to record the total price as a loan and reduce the balance monthly (I'm paying down over 36 months) or if it is enough to just record the monthly invoices as cost.

I may be required to show the vehicle as an asset in my balance sheet.
I'm sure someone has done the same?

 

[bwglaw]

Are you a sole trader or a Ltd Co - is the car for work?

Jonathan

 

[Alpha]

You show the asset at purchase price with the opposite entry in the balance sheet as a loan.

As you make monthly payments each payment will be part capital and part interest.

Post the interest part to the profit and loss and the capital part to the HP loan account.

 

[Joyous]

Don't forget that as it's sitting on your balance sheet you can claim capital allowances on the vehicle (and the VAT if it's not a car) .

Regards

Joy

 

[bwglaw]

So whether the person is a sole-trader or Ltd Co is irrelevant? (I'm not an accountant but thought it might be a factor where the car may be used for personal use)

Jonathan

 

[Mwebb]

Don't forget that as it's sitting on your balance sheet you can claim capital allowances on the vehicle (and the VAT if it's not a car)

Now i am not an accountant, so am sticking my neck out with this question, questioning someone that is, but i thought if you put a car through your business you could claim half the VAT back...and all the VAT for a commercial vehicle?

Please let me know the facts on this, as it may become important to me.

Thanks
michael

 

[Joyous]

Jonathan
Sole trader or limited company is irrelevant in respect of the tax/VAT treatment of commercial vehicles. However if a vehicle is sitting on the balance sheet of a sole trader it is possible that there might be an element of private use. If there is private use then capital allowances will be restricted by the element of private use.

I think there was a test case put before the European courts some time back where an attempt was made to reclaim the VAT on cars that limited companies made available to their employees but I don't think it got very far.


Michael
It's generally not possible to reclaim the VAT on a car that is bought for your business. There are a few exceptions, eg taxis, car hire companies and driving schools but generally speaking you can't recover the VAT. You can recover the VAT on a commercial vehicle, (ie 4 wheels and an engine but not a car).

The only instance where I know of being able to claim back 50% of the VAT is for car leasing companies, ie where there is private use of the car only 50% of the VAT is recoverable. But generally the rule is VAT on cars - no, VAT on commercial vehicles - yes.

Regards

Joy

 

[Mwebb]

Joy,
So if i purchase a car on a lease purchase basis. Give it to myself as a company car, which i use for both business and personal mileage...

can i clam half the VAT back?

 

[Joyous]

No - my posting referred to the leasing company being able to recover the input VAT.

Regards

Joy

 

[Mwebb]

So basically, the best thing to do is if i want to lease, just take out a private lease...they are the same price after the VAT is added, and pay myself extra to cover the cost....that way no extortionate company car tax..

( I hate company car tax...i had to have one when i worked within the car dealers..+ plus new car every 3 months negative= K code me up....!!!)