Registered Posts: 6 New contributor 🐸
Hi,

Can anyone help with leased car payments when calculating taxable trading profits? In my BPP book, the only info I can find is the following formula for allowable expenditure:

£12,000 + P x R (where P is cost of car and R is the annual rental)
2P

All BPP have said is 'learn this formula', which I have. Have just tried to do the June 2009 past exam paper and I can't work out how they have arrived at the amount to be added on when calculating taxable trading profits. Task 2.1. I've tried to apply the above formula but it doesn't work out.

Starting to panic now.

• Registered Posts: 24 New contributor 🐸
Hire or lease charges (expensive cars)

If a car costing more than £12,000 is leased or hired, part of the rental is disallowed.

The disallowable amount is calculated using the following formula.

Disallowed amount = ½ * (Retail price when new - £12,000) * Hire charge
Retail price when new

Example

HNN Ltd incurs annual rental expenditure of £1,960 on leasing a car with a retail of £14,200. The car was first leased on 1 January 2008. HNN Ltd prepares accounts to 31 December.

Show the amount disallowed for the purposes of calculating adjusted trading profits in the year ended 31 December 2008.

Solution

The following amount is disallowed:

½ * (14,200 -12,000) * £1,960 = £152
£14,200
• Registered Posts: 6 New contributor 🐸