Capital allowance for cars

pinoyLiz

Hello,

I need clarification.
1. I am helping my friend on his Tax return.His old car with TWDV £6000 was sold for £3,000. Is the £3,000 difference the balancing allowance and this will be put in the capital allowances on the tax return form? or do I still use the 25% WDV and add it to the pool since he bought a new car or I will just treat the £3,000 balancing allowance to write off the old car.

2. He bought a new car for £16,000. The capital allowance for this is £3,000 right? as FYA of 40% isn't application as it is mor than £12,000. He uses 30% as private use,does it mean the capital allowance would be £2,100?

3. Is it right that if a car is more than £12,000, this should have its own pool? or is it more than £10,000?

I am desperate for your help.

Many thanks,
Liz

peugeot

A balancing allowance is given in addition to the capital allowances in the schedule D1 computation, so yes the £3,000 balancing allowance (also restricted for private use) will be in addition to the capital allowances for (a) the new vehicle and (b) any other fixed assets. You would not grant any capital allowances in the year of disposal.

Cars over £12k are deemed expensive cars and should be in their own pool until their TWDV falls below £12k, when they should then be transferred to the general pool.

Expensive cars do attract a £3,000 capital allowance, and this would be restricted for the private use. Similarly, the balancing allowance should also be restricted for any element of private use.

Kind regards
Steve

pinoyLiz

Hello Steve,

The balancing allowance (tax return) is similar to the way we treated the loss of disposal of the asset (P & L)?

Thank you for the help,it is greatly appreciated.

Regards,
Liz

peugeot

Sort of. This is how it will look:

TWDV b/f..........Disposal...........Balancing Allowance..............TWDV c/f
..6,000..............(3,000).................(3,000)*...............................-

*The £3,000 balancing allowance is restricted to take into account private use.

Hope that helps.

Steve

pinoyLiz

Hello Steve.

Got it now. Thanks in a million!

I have another case, if I have a general pool of TWDA £ 20,000 and I have a sold an asset worth £2000. Does it work like this :
TWDV 20,000 - Disposal 2,000 = 18,000 x 25% (WDA)

The 25% WDA is my new capital allowance and this will be taken into account when filing the tax return.

Sorry for being such a pain but you are just so helpful.Plssss...another help here :-) :-)

Thanks a lot Steve,

Liz

peugeot

Yes it does work like that - it is the disposal proceeds that go into the capital allowances comp. It is not as common (though it can happen) for the general pool to have a balancing charge/allowance on disposal of certain assets - it generally happens when a business ceases to trade, or when a sole trade/partnership incorporates.

You would only generally receive a balancing charge/allowance for a disposed asset(s) in their own pool (commonly expensive motor vehicles), which is why HMRC require any cars with a TWDV c/f of < £12,000 to be transferred to the general pool to prohibit balancing allowances on cars < £12k.

Regards
Steve

pinoyLiz

Hi Steve,

What do you mean about that it is the disposal proceeds that go into the capital allowances comp? Isn't it the 25% of the 18,000 which is 4500 (WDA) should go to the capital allowance box in the tax return? (confuse) :-S

Many thanks,
Liz

peugeot

Yes it is, but you have to show the disposal proceeds under the disposal heading in the capital allowances comp. For example:

General Pool Excerpt:

TWDV b/f.......Additions.......Disposals........Capital Allowances.......TWDV c/f

...10,000.........1,000............(2,000)*............(2,250)..................6,750

*This is the proceeds amount.

Going back to the motor vehicle scenario, this should really be in the general pool because its TWDV is less than £12k, so it shouldn't attract a balancing allowance.

Regards
Steve

pinoyLiz

Oh boy, you are absolutely right.
I should have add the car on the general pool because the TWDA is just 6,000. So I will add this up on my General pool. Less 3000 and 2000 proceeds.Am I right? So it will look like this?

TWDA b/f Addition Disposals Capital Allowance TWDA c/f
10,000 + 6000 1,000 (2000)+(3000) 3000 9000


and it is not going to be like this :(Car) 30% personal use
TWDV b/f..........Disposal...........Balancing Allowance..............TWDV c/f
..6,000..............(3,000).................(3,000)*...............................-

Although the car was on a separate pool when bought


Kind regards,
Liz

pinoyLiz

OOpppsss something wrong with my spacing...I hope it wouldn't confuse you.

Thanks
Liz

peugeot

That seems ok. As long as there isn't a balancing allowance on the car disposal then it should be fine. As mentioned previously, HMRC's reason for transferring cars < £12k into the general pool is to stop balancing allowances being claimed upon disposal, because more often than not a car worth less than £12k in the tax comp will have an even lesser trade-in/sale value.
Kind regards
Steve

Dean

peugeot wrote: »

As mentioned previously, HMRC's reason for transferring cars < £12k into the general pool is to stop balancing allowances being claimed upon disposal, because more often than not a car worth less than £12k in the tax comp will have an even lesser trade-in/sale value.

You wouldn't do this if there is private use though?

Regards

Dean

peugeot

Why Dean?

We work out the capital allowance on what would be granted with no private use, then adjust the general pool capital allowance in the year accordingly?

We've had hundreds of client inspections where we do this and never had any problems.

Steve

Dean

In fact I can't find the requirement to transfer the separately pooled car to the general pool at all.

There is a 4 year SLA rule where you are potentially required to transfer the asset to the general pool but I can't see one for the car; when the WDA has been reduced below 12k?

Regards

Dean

peugeot

Dean,

It isn't set in stone anywhere! I've looked at the tax legislation - however I have gone back to my ACCA Advanced Tax books and it does state in there that cars with private use should not be pooled!!

I'm not sure how much this rule is totally applied at HMRC because I remember a few years ago that we had a client where we had not moved the car into the general pool (most of our clients have private use attached to their vehicles) and HMRC advised that it should be included in the general pool.

Our system now automatically moves cars < 12k into the general pool but our overall calculations are (thankfully) correct!

I think, for uniformity, you should NOT include the car with private use in the general pool because if you did you'd be doing your client out of the balancing allowance!

peugeot

p.s. just before you think "has Steve no work to do" - our computers crashed so I took the opportunity of looking it up!!:thumbup1:

No excuse now - they're back on!!

Best wishes
Steve

pinoyLiz

Thanks

Hello Steve & Dean,

Thank you very much for the help.
So I will do the below with regards to the sold car-30% personal (separate pool)

With regards to the new car which is worth £16,000, the capital allowance for this is just 3000.

Your help is greatly appreciated.

Regards,:thumbup1::thumbup:
Liz

peugeot wrote: »

Sort of. This is how it will look:

TWDV b/f..........Disposal...........Balancing Allowance..............TWDV c/f
..6,000..............(3,000).................(3,000)*...............................-

*The £3,000 balancing allowance is restricted to take into account private use.

Hope that helps.

Steve