When a vehicle is purchased for business use, the cost of the vehicle is treated as capital expenditure and although the cost is not deducted from your trade income, capital allowances acn be claimed which reduce the amount of profits charged to tax.
When a business has taken advantage of the scrappage scheme, when purchasing a new vehicle, capital allowances are available on the amount actually paid for the car, i.e. the net amount paid after the £2,000 deduction.
The car that has been traded in under the scheme is treated as having been scrapped, so the £2,000 discount is not treated as consideration for the old vehicle. The £2,000 does not need to be delcared as taxable disposal proceeds for capital allowances purposes.
Where a sole trader or partnership business has taken advantage of the scrappage scheme, adjustments must be made to the capital allowances claims for private use of the vehicle.
For assistance with any of the above, please contact your nearest TaxAssist Accountants.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.