Car aaargh!

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anniem
anniem Registered Posts: 1,326 Beyond epic contributor 🧙‍♂️
OK, I feel really stupid asking this; so stupid in fact that I was going to set up a new user name and log in secretly but then I thought what the hell!

I have a client who gives lessons in, what I'm going to call, an unusual musical instrument.

He bought a car for less than £900, which I'm told he uses solely for going out to see children to give lessons.

Because the car didn't cost much his repair bills are quite expensive. He has to travel long distances to give his lessons as it isn't a popular instrument to learn, so his fuel expenses are high. His fuel and repairs total more than half of his income, even if I take off 25% for private use they still total 40% of his income, and I don't think he uses the car privately for 25%.

I don't envisage that this car will last more than 2 years, so don't see any point capitalising it as an asset (its probably more of a liability).

Your thoughts on how to treat this would be appreciated.
FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire

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  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    I'd put it through as an asset, it doesn't matter if it doesn't last long, when its disposed of, with zero proceeds or whatever you can bring the rest of the cost in. (If he's spending a lot on repairs it might last longer than expected)

    He needs to be realistic about personal use of the car, I suppose it helps a lot having bought it as the business starts, but its likely he'll use it increasingly for personal use. You don't realise how handy a car is until you get one.
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    If it cost more than £300, I would capitalise it and claim capital allowances.
    Claim all running costs as an expense.
    If there is no private use, then the costs are 100% allowable.
    Some people will put in a 5% PU to be on the safe side - as it's unlikely that he NEVER stops off at the shop for milk on his way home etc which is apparently what a HMRC inspector would say.

    If he has high costs, he has high costs - put them through! :)
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    PS:
    anniem wrote: »
    OK, I feel really stupid asking this; so stupid in fact that I was going to set up a new user name and log in secretly but then I thought what the hell!

    Good - we love you and everyone is allowed to ask 'stupid' questions from time to time. I don't class this one as stupid. :)
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    Monsoon wrote: »
    PS:



    Good - we love you and everyone is allowed to ask 'stupid' questions from time to time. I don't class this one as stupid. :)

    Agreed, some situations feel a little odd, and even though you know what to do, you want a second opinion to be sure.
  • anniem
    anniem Registered Posts: 1,326 Beyond epic contributor 🧙‍♂️
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    Thank you all.

    I'm just concerned at the level of vehicle expenses being put through and whether HMRC are going to haul him over the coals for it. I don't want to get it wrong.
    FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    anniem wrote: »
    Thank you all.

    I'm just concerned at the level of vehicle expenses being put through and whether HMRC are going to haul him over the coals for it. I don't want to get it wrong.

    The high repair costs will be offset by low capital allowances. Compare the workings of him having even a new Mondeo.

    Low profits and high initial costs are to be expected with any new business, or just generally low profits with the current tough times.. HMRC may question it, but theres no rules broken.
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    PGM wrote: »
    HMRC may question it, but theres no rules broken.

    Exactly.
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    Monsoon wrote: »
    Exactly.

    See, you've taught me the ways of the HMRC!
  • mc25
    mc25 Registered Posts: 232 Dedicated contributor 🦉
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    PGM wrote: »
    See, you've taught me the ways of the HMRC!

    If all expenses are business related, i would say definitely put them through, As long as you have all the records for this. Thanks
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