making the purchasing of a company truck pay


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Hello there, I run a small gardening business that turns over approx £150k pa. Our 8 year old tipping truck keeps breaking and is proving very expensive to keep on the road.

With the help of a bank loan I would loke to purchase a new truck. This truck would cost £30k to purchase and I would like to depreciate this vehicle over a 5 year period through our books.

I understand that the interest on the loan can be offset against our tax, however wondered if there was any other tax benefits that would make an investment of this size more viable.

I wondered if the depreciated value year on year could be offset against our profits?
Your help and advise are really appreciatedsabreone0

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Your business will be able to get tax relief on the cost of the truck. The timing of this tax relief will depend on the method of purchase.

If the business buys the truck (your suggested method) or enters into a hire purchase agreement, it will be able to claim capital allowances. The business may be able to get 100% tax relief in the year of purchase through the annual investment allowance (AIA). The AIA is due to be reduced signfiicantly from £100,000 to £25,000 from 1 April 2012 (if you trade through a company) or from 6 April 2012 (if you're a sole trader). Your accountant should be able to give you more details about the implications of this reduction.

If the business enters into a finance lease (i.e. where legal title doesn't pass to the business but it substantially enjoys the risks and rewards of ownership), then capital allowances won't be available. Instead, tax relief will be given on the depreciation going through the accounts each year.
 
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Iam getting closer to understanding!!

Iam getting closer to understanding!!

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Thank you for your help. It is much appreciated.
I have done further research and the the new truck would cost approx 20k to buy. Less than I thought!! We turn over 150k pa with about 30k taxable profit. We are a limited company.
Please could you advise if this purchase would be cost effective over a 5 year plan.
My understanding is limited but the Annual investment allowance would give us 100% tax allowance now. How does this work? Would we pay no corporation tax this year?
We could also depreciate the vehicle over the term and claim interest relief on the bank loan (we would borrow 100% on the truck and so our loan would cost around £400 a month over 5 yrs)
How does depreciation work? can you claim tax relief against the 18% or thereabouts that the vehicle loses each year?
Would this purchase pay from a tax offsetting standpoint. On a month to month basis would the loan repayments be offset on the whole against our tax bill or would we be better just to muddle on with our old vehicle and keep paying the repair bills?
Sorry for all the questions.
 
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It's your business so I can't tell you what to do. There's a saying that 'you shouldn't let the tax tail wag the commercial dog' i.e. you should think first about the commercial issues and whether your business needs a new truck and then look at cash flow and tax implications.

If you buy a truck for £20k, then this will be shown as an asset in the balance sheet of the company. This value will then be depreciated over a number of years (five per your post). The depreciation is not tax deductible and will be added back to the profit per the accounts in the corporation tax computations. Instead, the company gets tax relief on the purchase of the van through capital allowances (which are essentially HM Revenue & Customs version of depreciation). The company is likely to get 100% tax relief in the year of purchase through the annual investment allowance. If this is available and the company's taxable profit is normally around £30k, the taxable profit in the year of purchase would fall to around £10k.

The interest on any bank loan to finance the purchase will also be tax deductible.
 
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