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katieanne


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Capital allowances / AIA / depreciation - HELP?!
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Hi. I would be so grateful if someone was able to give me some advice. I am helping a friend to do his first years accounts to year end 5th April 2008. He is a self-employed tree surgeon.

In his first year of trading he purchased the following and I am unsure how to account for them (I am using Quickbooks):

- A work truck (100% work use) for £1,400 which he scrapped 2 months later (no income from it) as it was totally dead.

- A work landrover (again 100% work use) for £4,500

- A piece of machinery for £3,800

I have looked into the AIA of £50,000 but cars do not qualify for this so I wasn't sure if the work truck and landrover are classed as cars or not? They are 100% work vehicles. Also, does AIA apply if you are self-employed or only to Ltd companies?

I also read about the WDA of 20% per year?

Do i put the cost of these vehicles into QBs like a normal bank transaction?

Also, what do i need to do with the depreciation in quickbooks? If I have claimed 100% of the costs of all 3 items in the AIA then do I also need to show depreciation of the asset on the balance sheet?

I would be so grateful if someone could help with these questions.

Many thanks in advance,
Katie

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Shamus


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Hi Katie,

Only got time at the moment to give the theory behind the transactions rather than how there entries are to be recorded so hope someone else will pick that one up. (Sorry, off to build a snowman with my son as soon as he's got his act together!).

Take these three cases seperately.

(1) Truck
My understanding is that in this situation the truck can be written off in the year (purchase price minus residual value).
Evidence is important here. Evidence of purchase (invoice, movement in funds from the bank to the seller etc.) and evidence of scrappage! A truck is a lot of metal and is worth a bit even if dead. It's not uncommon in these cases for a client to scrap a truck for cash and is claim that it's still sitting in his yard!

(2) Landrover
This is quite a common one and Land Rover Defenders get specifically mentioned in revenue documents.
I appreciate that no VAT is involved here but bear with me as the VAT rules set the general rules.
VAT 700/64 section 2.1 states that precludes such vehicles as being considered anything other than a car, and section 2.2 excludes any vehicle with less than twelve seats being considered for an exemption.
This isn't to be confused with the rules for pickup's where the definition is based on whether the vehicle is able to meet the VAT definition of a van, ie payload over 1 tonne etc.
HMRC follow the same line and therefore the land rover would be considered a non-commercial vehicle. So basically it's a car and AIA is not allowable.

(3) Machinery.
Providing that your client was not in any way connected to the person that he purchased the machinery from I'm pretty sure that Annual Investment Allowance is allowable.

(4) Limited Companies
AIA's are available to all businesses regardless of size.

Right sure that those have opened up the floor for disagreements all around.

I appreciate that mine isn't a full answer but hope that it helps a little.

Shaun.

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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Shamus


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Oops, missed the fact that you stated that it was first year accounts!

The sums are too low to have any effect on your calculations but for anyone else reading this don't forget that the AIA is Pro-Rata. So take the number of days trading / number of days in the year * AIA allowance

For example, 13 weeks for 2009 tax year would be a maximum AIA of (13*7)/365*50k : £12,465.75 NOT 50k as some people assume.

Right, fingers have warmed up again. Back to that snowman.

Shaun.

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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
katieanne


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Hi Shaun,

Thank you so much for your advice. I am so grateful. I was certain that the Defender would be classed as a commercial vehicle so it's great to get that correct. I'll also get my friend to dig out his paperwork relating to the truck he scrapped to make sure he definitely didn't get any money for it.

If you, or anyone else, has any time over the next few days and is able to help me with how i record these transactions on quickbooks i'd be grateful.

Many thanks,
Katie

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