As we approach the end of 2020, some businesses may be looking at the books ahead of the new year and looking at ways in which capital can be saved. For most, the fiscal year ends in April but it can be useful to begin planning ahead, should your business be thinking about purchasing a new vehicle. We put together a useful guide on how much tax you can claim back on your new commercial van.
VAT Reclamation
The most obvious form of tax relief that the majority of businesses can benefit from is VAT-reclamation. If your company is VAT registered (usually achieved when turnover reaches £85,000 per year) then you will be eligible to reclaim the VAT spent.
For example, if a brand new van costs £30,000 inclusive of VAT, then your business will be able to claim back £5,000, 20% of the total cost.
Claims for Commercial Vans Under Annual Investment Allowance (AIA)
Every company in the UK is entitled to what is called an annual investment allowance. What this means is that you are able to deduct certain expenses from pre-tax profits, thus giving you tax relief on a purchase. The current allowance stands at an eye watering £1 million.
There are strict rules around what can and cannot be claimed under AIA. For example, ‘plant & machinery’, ‘integral features’ and ‘fixtures’ can all be claimed. For the purpose of this piece, we’re interested in ‘plant & machinery’ as this is the category commercial vans fall under.
By claiming the full purchase price through AIA you could save thousands of pounds. If we go back to the example of a £25,000 (ex. VAT) new van, you could save £4,500 as the rate is currently 18%.
It is worth noting that all claims must be made in the same tax year as purchase and that this is just an example - you can work out how much you could save here.
Cash Basis for Sole Trader Van Purchase
If you are a small business or sole trader you may be using cash basis accounting. This is a type of self-assessment specifically designed for companies that turn over less than £150,000 per year.
If you use cash basis accounting, then you can claim new van expenses for your van purchase as a sole trader in a similar way to AIAs. You can find out more about whether you qualify on the government’s website.
Tax Relief Claims under Mileage Allowance
Another avenue available to those looking to claim tax back through their new commercial van is through the mileage allowance scheme.
If you drive a lot for work then you will be entitled to the allowance and you can apply when completing your self-assessment. You can claim up to 45p per mile for the first 10000 and 25p thereafter.
Depending on how many miles you cover in a year, you could see some huge savings. As an example, if you drove 12000 miles in a year, you could claim £4,500 on the first 10000 and £500 for the subsequent 2000.
Self Employed Business Expenses
If you are self-employed and using your new van for work purposes then there are many other expenses that can be claimed back.
These are:
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Vehicle insurance
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Repairs & servicing
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Parking
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Hiring charges
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License fees
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Breakdown cover
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Train, bus & taxi fares
Bear in mind that you cannot claim for any non-work related travel, fines & penalty notices you receive or travel between your home and place of work.
If you are interested in purchasing a brand new commercial vehicle then get in touch today. One of our team will be happy to guide you through the process and answer any questions you may have around how much tax you can claim back on your new van.
