AIA

Morory

Firstly apologies for having a dim moment. My query is in relation to sole trader accounts. Normally I deal with a higher lever. My husband went self employed last year and bought a van on hp for £10,000. I understand he can claim AIA. But, I can’t get my head round what to do with it. Does the whole amount come off his profit? If so, do I then claim expenses for interest charged on the hp? As I counted the whole amount I do not depreciate? His net profit is currently £22,000, so would this come down to £12,000. I am so sure there is a simple way to this, but I keep overthinking it and stalling in getting it sorted. I would be grateful of any advice. Thanks in advance.

douglasstroud

You need to separate the capital element of the agreement from the interest, you could then claim AIA but only on the capital cost of the asset and the monthly interest charges would be classed as an expense through the P&L.

I would imagine that you have other expenses for the period so you may not wish to claim all of the AIA so that the PA is not wasted, whatever you do not claim will go into the main pool and you can then claim WDA in the following year.

For bookkeeping purposes the fixed asset will be depreciated as normal and taken to the P&L and then added back for tax purposes.

Morory

So would I be correct in claiming the AIA capital against the gross profit. Then the following year add the depreciation to the p & l, then I believe there is a section on SA to add back the depreciation? If I only claimed example £5,000 for AIA, so just under pa, could I then claim the other £5,000 the following year? My work accounts are so different to a small trader self employed. Many thanks.

RyanMIP

> @Morory said:
> So would I be correct in claiming the AIA capital against the gross profit. Then the following year add the depreciation to the p & l, then I believe there is a section on SA to add back the depreciation? If I only claimed example £5,000 for AIA, so just under pa, could I then claim the other £5,000 the following year? My work accounts are so different to a small trader self employed. Many thanks.

No, that would not be correct.

douglasstroud

As Ryan says, no you would not be correct.
AIA are Capital Allowances and these are claimed from your net profit (Gross profit minus expenses) AIA can only be claimed in the year of purchase any amount unclaimed will go into the main pool where the following year you will be allowed to claim a WDA of 18% on whatever total is in the pool this then leaves the WDV which you carry forward to the next year and so on annually until the balance goes below 1k and you can claim it all.
Depreciation is purely for bookkeeping and included for the FA on the balance sheet how you deal with it in your accounts will depend on the firms depreciation policy, if you are using the long form tax return then add back on the return in the appropriate box or if you are using the short form then just add back before filling out the return.