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Hi,
I am a little confused with regards to the ins and outs of claiming VAT on company cars and subsequent depreciation. I have been informed that they are not treated in the same way as vans i.e reclaim the VAT and charge depreciation against the net figure. (I understand they are treated different for tax purposes - through doing the self assessment course).
Instead I am told that you cannot claim VAT back on company cars, so, how do I post the VAT in Sage? If I post the invoice in the normal way, the VAT will automatically be calculated within the VAT return, when I run it? Surely I need to capitalise the net figure and depreciate on the net figure?
I do hope I am making sense, if not then please ask as many questions you need.
Many thanks
Kind regards
Kerry
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- Member
- Practice Licence
- 88 posts
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Kerry,
I would suggest that you post the gross purchase value of the car to fixed assets as a zero rated item.
This is the cost to the client.
Cars generally are not classified as "exempt" or "out of scope" of VAT.
If a Road Fund Licence and other "consumables" are also included on the invoice, this should be expensed however.
You should also depreciate from the value that is capitalised.
Further down the line, any maintenance and repair costs can be treated as a Standard Rated, as long as the invoice is addressed to the client's business name, and is paid for by that business.
It doesn't matter how much private usage of the car is involved in this respect.
Hope this helps
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Pete,
Thanks for you reply.
I did think this may be how to deal with it, however, capitalising on the VAT element seemed wrong to me! I would always depreciate from the value that is capitalised, I just wasn't certain what value to capitalise.
With regards to the repairs etc, yes i understand that VAT can be claimed back.
Again, many thanks for you advice.
Kind regards,
Kerry
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Hi Kerry
You are correct you cannot usually claim back the VAT on a company car other than in certain circumstances.
http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm#1
The above link is from HMRC re the reclaiming of VAT on vehicles so this will give you the guidance you need.
As Pete said you would post the Gross value of the invoice to the fixed assets less the Road Fund Licence which should be expensed.
You would then depreciate the asset in the normal manner. for motor vehicles i tend to use reducing balance rather than straight line as this is more reflective of how they actually depreciate.
I hope you find the above useful.
Kind regards
Stuart
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Thanks Stuart,
I may seem lazy not checking the HMRC website, but I can never seem to find what I am after when I go on there! I get side tracked looking at other things that pop out at me; there is so much information to look at so I end up spending far too long looking!
Best Regards
Kerry
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> Hi Kerry
I know what you mean I tend to google the question then pick the HMRC link on the google results page to save me that problem. I also don't find the HMRC site search that great at finding what I want.
Kind Regards
Stuart
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- Member PM.Dip
- Practice Licence
- 481 posts
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Stuart Wildmansaid:
“You would then depreciate the asset in the normal manner. for motor vehicles i tend to use reducing balance rather than straight line as this is more reflective of how they actually depreciate.”
I was asking about this on another forum - who decides on the depreciation policy in general?
A lot of people aren't really interested in the figures they just use them because HMRC say they must so they don't really care about which rate to depreciate at. Or how many years. Or even if to bother depreciating at all and just expense the item (say if it was under a certain value like £200). For tax purposes you have to follow HMRC rules but with the Annual Investment Allowance you can use up 100% in the first year on a lot of items anyway so some business owners may want to do that with the asset in their own books.
This led to the point of it being up to us as bookkeepers to make te people interested in the figures.
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Hi Peasie
Depreciation and Written down allowances (WDA) are seperate things both relating to fixed assets (Annual Investment scheme comes within the Scope of the WDA).
The rules and regulations of WDA are stipulated by HMRC and are the proportion of the cost off assets that can be written off against profit for the calculation of tax.
Depreciation comes from the Accruals or Matching concept which states you must match costs against the revenues they generate.
The rate of depreciation of an asset should be determined by it's useful life and the type of depreciation should be reflective of how the value of the asset will diminsh.
The idea being that if you purchase a machine that will produce "widgets" for say 10 years which you then sell then each year you should write off 1/10th of cost of purchase of the machine to offset against the revenue derived by it's use. As previously stated if the machine devalues at a greater rate initially then Reducing balance should be used rather then straight line.
I most small business' cash is king and I agree they do not tend to do depreciation on a monthly basis only on an annual basis for the accounts in this case the rules for WDA's is usually followed to save making two calculation's.
Depreciation is added back to the net profit and the WDA used in it's stead.
Manipulation of Assets Values and depreciation can scew a business' profits which can create a higher non taxable profit for a business.
An interesting topic.
Cheers
Stu
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- Member PM.Dip
- Practice Licence
- 481 posts
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Hi Stuart,
What I was trying to get a was - take your "widgit making machine" if it cost £5000. In your accounts this would be depreciated at £500 per year over 10 years. In the tax calculations the £5000 could be used up in the first year (in AIA).
So you are going to have two calculations. In this discussion I am only referring to small companies that won't use up all their AIA. There could be a situation where it might be wise not to use up all the AIA in the one year. I wouldn't consider that to be manipulating any figures as you're still obeying accounting rules and still obeying HMRC rules.
I'm probably not making my point very clear. What you could do is copy/paste into a language translator. From English (?) to French. Then from French to German. Then from German to Italian. Then from Italian to French. Then from French back into English.
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Hi Peasie
What about spanish lol.
I know what you mean I tend to expense anything under £500 for small companies or £1000.00 for larger companies.
Worldcom made this whole area extrememly interesting as they took it to the extreme lol.
In order to make the business look profitable they capitalised everything and depreciated over the longest possible terms. If my memory serves me they even capitalised the paper cups for the water cooler.
I am not sure why you would not want to use all of the AIA allowance but it is an interesting point. Even if the company had made a loss you would carry forward the loss adjusted by the AIA to next period thus carrying forward the AIA in the adjusted Loss or am I having a moment.
Best regards
Stuart
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- Member PM.Dip
- Practice Licence
- 481 posts
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Hi Stuart,
As you're more experienced about these sort of things it is most likely me that is having a moment.
Regarding not using up the AIA - I was thinking along these lines. Say a sole trader has just started up and at the end of the first year they had made a profit but not that great, maybe £10,000. Now their widgit making machine cost £5,000 - would they really want to use up all the AIA and bring the amount the are taxed on down to £5000 - below the personal allowance.
Your mention of expensing things under £500 for small companies and £1000 for larger companies kind of illustrates the point I was making on the other forum. Who decides? Other levels have been mentioned. As has examples like Worldcom. For instance a company capitalising a kettle.
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> Hi Peasie
Good example in both cases. Time for some research me thinks.
Cheers
Stu
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I would also be interested to have some clarification on this issue, as it is something I have recently come up against in practice.
Specifically, a microwave oven for the staff costing £80.
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This is becoming a very involved debate which crosses a number of different areas.
We have to be careful about the treatment of capital items when distinguishing between sole traders/partnerships and limited companies.
Limited companies are governed by the Companies Act and/or International Accounting Standards. Particularly with listed companies the IAS must be applied.
The trend in descriptions is to distinguish as between Revenue expenditure and Capital Expenditure (as per IAS) and my own recent research shows that this will be more common. Listed EU companies have been required to adopt IAS since 2005 and it may well be the case that this will follow through to all limited companies in due course.
My understanding is that if a limited company does not follow IAS (which they are entitled to do) then it may be questioned as to why there is a deviation in any event. There is of course GAAP but some companies are following IAS in any event. What you cannot do is switch between the two as it suits.
Consistent accounting is key, so that if you adopt a policy then it should be realistic and measurable and then applied for each set of accounts - irrespective of whether it is accounts for a non listed company or sole trader. If you adopt IAS then there is a raft of regulation.
As far as HMRC are concerned, my opinion is that they will accept what you, as the expert, have proposed in the accounts as long as it is a realistic and measurable policy. So using the microwave it would not be realistic to show this as Capital expenditure and write it off over a twenty year period.
Specifically for the microwave my advice is to put this into the accounts as Revenue expenditure, i.e. an expense in the P&L (or the income statement as this is becoming known).
Geoff Smith
ICB Advisory Council Member
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Thanks Geoff. That is what I did with the microwave. It makes sense not to have it as a depreciating asset over many years, as in real terms, what is a second hand microwave really worth?
It is a grey area though, given the definition of "expense" a microwave isn't really used up over the course of the business year.
I'm happy I've done the right thing though.
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Thanks Geoff
It is always good to have your input.
I think this may be an interesting CPD topic for the London Workshop perhaps you may like to give a lecture in January or February on this topic.
Warmest regards
Stuart
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Provided it is on a WEDNESDAY and not a WENESDAY and Chelsea are not playing at home
Oh and there is no snow on the ground and no rain or wind 
And there is some decent food
And we come over into the east side of London (which really is Essex but we forgive you) 
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LOL OK OK
It will be on a WEDNESDAY I am sure I can treat you to a Burger King but dont tell everyone LOL
I will leave the month to you so as not to clash with the Footie .
Cheers
Stuart
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Stuart Wildmansaid:
“LOL OK OK
It will be on a WEDNESDAY I am sure I can treat you to a Burger King but dont tell everyone LOL
I will leave the month to you so as not to clash with the Footie .
Cheers
Stuart”
Hi Stuart,
Matching Revenue to Capital expenditure would be a key workshop topic.
This should positively impact on attendancy.
so who is the vic../volunteer on this occasion lol
Last workshop was excellent and informative.
Thanks Andrew and Stuart,
Kind Regards,
Nathaliexxx
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