Cooper D Self employed tax bargain

[Benfrain]

rentagas - you're experience exempifies why I never use accountants if I can possibly help it!

I went straight to the source and emailed the link at the bottom of the page that good old 4810510 first alerted us to.

Below is the correspondence I have had with them. It's from emails so to make most sense, read bottom to top...

"Mr Frain

By sole proprietor I refer to the self employed.

Nick Williams

-----Original Message-----
From: Ben Frain
Sent: 11 May 2007 13:48
To: Williams, Nicholas (CT & VAT, London)
Subject: Re: CT and VAT Reliefs and Incentives

Hi Nick,

Thanks for the reply. Forgive me, but just to be perfectly clear, can
you just confirm this will therefore apply to Self Employed people?

Many thanks - Ben
On 11 May 2007, at 10:22, Williams, Nicholas ((CT & VAT, London)) wrote:

Mr Frain

I have been asked to reply. For the purposes of note you refer to, we
use the phrase "businesses" to encompass both limited companies and
sole
proprietors.

Nick Williams

-----Original Message-----
From: benjamin.frain
Sent: 11 May 2007 08:16
To: Thomas, Paul (PAYE, Income Tax & NIC)
Subject: CT and VAT Reliefs and Incentives

-----------------------------------------------------------
11/05/2007 08:16:20
comment = Dear Paul,

I am writing regarding the following piece of legislation
HM Revenue & Customs: 100 Per Cent First-Year Allowances for Cars with Low Carbon Dioxide Emissions and Natural Gas and Hydrogen Refuelling Equipment

Please could you confirm that this legislation ('100 Per Cent First-
Year
Allowances for Cars with Low Carbon Dioxide Emissions...') applies to
Self
Employed workers as well as Businesses/LTD Companies?

I look forward to your response.

Regards,

Benjamin Frain"

[Andyblizz]

The car Appears to Fall into the right banding to allow 100% against Capital allowances but remember that a self employed person will have private element which is not allowable.

And when the car is sold what ever value you get for the car will be taxable.


Examples

2007/08 tax year

Car cost : £18000

100% FYA (low Emis) £18000
Private Use (15000 bus miles 5000 private miles) 25% - £4500

Capital Allowance therefore £13500

Basic rate Tax saving £13500 @ 22% and NIC @ 8% = £4050

Higher Rate saving £13500 @ 40% Tax and NIC @ 1% = £5535


All sounds great BUT when you sell or part ex the car.

08/09

Sales price - £12000

B/F value - £NIL (as all claimed in previous year)

Balancing Charge £12000

However the can be reduced by private element (assumed same as preious yr)

Therefore Charge is £12000 less 25% (£3000) = £9000


This will increase you taxable profits by £9000

and in worse case it could push you into the higher rate tax band


Basic rate band £9000 @ 22% Tax and 8% NIC = £2700 Tax to pay

Higher Rate band £9000 @ 40% Tax and 1% NIC = £3690 tax to pay



However is you are going to run the car for years and years the saving will be worth while.



Please note this is general figures and not to be taken without consulting your accountant ot tax advisor. (07/08 tax rates use)

As i take no responsiblity for the use of the above info.

[rentagas]

Yes I understand that because it retains it's value the advantage is not as great as a car that depreciates hugely in the first few years.
Nevertheless it makes the extras seem tempting!

[Benfrain]

Andyblizz - the liklihood would be that whatever money you get back from the sale (e.g. the £9000 in your example) you would put straight into a new vehicle, no?

So, that would be usable/claimable, as a capital allowance again?

[Andyblizz]

Quote: Originally Posted by Benfrain (original)

Andyblizz - the liklihood would be that whatever money you get back from the sale (e.g. the £9000 in your example) you would put straight into a new vehicle, no?

So, that would be usable/claimable, as a capital allowance again?

In some ways yes.

But in the eyes of the tax man it would be a Profit on sale of an asset of £9000.

If you purchase a new vehicle would would get capital allowance upto a max of £3000 less the private element. Because the 100% FYA on low emis car stops next year.

So if you use the above example it would be £9000 - £3000 + £750 = £6750

That assumes you buy another car.


What my main point is that it could push basic rate tax payers into the higher rate band which would get expensive. £6750 @ 41% (Tax & NIC) = £2767

This would be costly if you didnt know about it and purchased another car.


Also it would increase your next 2 payments on account to the HMRC, which would not help cashflow. (I know it might mean your payment after that is reduced but i think people need to know the possible down side of this)




If you plan to keep the car for ages none of this matters as the cars dep'n will mean any profit on sale will be small.


I hope this helps someone.

If anyone else has any other questions i maybe able to help


But as i have said before i would still check with your own accountant or tax advisor.


Regards

Andy