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Artois


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HP Agreement & AIA
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Good morning all

Just wanted to run something by you to double check that my treatment for tax purposes is correct.

My client (sole trader) took out a Hire Purchase agreement last year on a new van for work, I have seen the agreement and I am satisfied that it is indeed HP.

The total cost will be circa £19k with £2.9 of this being interest, so my understanding is that even though a deposit has been paid and a few monthly payments and legal ownership of the asset will not transfer until the final payment HMRC allow for the purchaser to be treated as owning the asset at the time the contract begins and that CA can be claimed from the time the asset is brought into use (CAA2001,s.67)

So for tax purposes I would claim AIA on the capital cost of the asset of 16.1k (the client is not VAT registered) and the monthly interest charges would be classed as revenue through the P&L, I do not want to claim 100% of the AIA as this would result in the loss of some of my clients PA so am I correct in that as AIA can only be claimed in the year of purchase any carried over will the go into the main pool and WDV claimed in the following years at 18% until the balance is below £1000

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

If anyone could confirm if my treatment is correct that would be great or if you think I have got it wrong then comments on this would be appreciated as well

Cheers 



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice
Shamus


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morning Doug,

so nice to see a tax treatment properly thought through like that.

I assume (?) that the accounts are being prepared under FRS105 so no need to consider the alternate capitalisation of borrowing costs treatments under FRS102 or IAS23.

nicely constructed post matey which others should take away as a lesson in how its done.

kindest regards,

Shaun.

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Shaun

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Leger


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That's exactly the way I would have done it Doug, though it's nice to see that Shaun backs it up as being correct. (I'm QBE) 

 

Shaun matey, does FRS 105 or 102 come into it as a sole trader, I thought they were for Ltd Co's?



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John 

 

 

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Shamus


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Hi John,

I always thought that you were AAT.

On the applicable to sole traders question, it's ne of those answers which is "sort of"... HMRC simply apply financial reporting standards through the tax system in order to bring some semblence of conformity to financial reporting... Of course, HMRC will always adopt the interpretation most beneficial to themselves so the real difference is that the self employed do not have the companies act and financial reporting standards (as given power through the copanies act) to protect them from such interpretations. That said, as HMRC now hide everything behind "simplification" its easier to find it in standards and then look for how HMRC have interpreted that rather than the other way around.

When looking to HMRC for guidance I am often reminded of the hitchhikers guide to the galaxy where the document needed was free for all to see.... but was locked in a filing cabinet, in the basement of the council offices, with no lights and no stairs down to it!

laters matey,

Shaun.



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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Artois


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Thanks Shaun/John for the replies much appreciated

Hi Shaun, I like the analogy between HMRC and the hitchhikers guide to the galaxy

  



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice
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