Got a van for my business and am going to be paying £250 each month for the next 5 years for it - can some clever person please tell me what entries I should be making for this?
Ie would I just enter the £250 each month as an expense or do I record the total value (approx 15k) as an assett and then reduce that down each month and if so - how?
Also depreciation - how would that be calculated and shown in the books?
I’m self emplyed and so far just enter any purchases in the normal way but this is baffling to me and how to also show it in the end of year tax return??
I’ll start by saying I’m not an accountant so don’t treat my advice as gospel, but as I understand it:
create a new bank account to represent the loan, and a purchase invoice for the cost of the van paid from that new account
the repayments from your current account are transfers to the loan account
when you get a statement showing the interest you’ve been charged, add that as money out on the loan account and tag it to an appropriate nominal.
At any given time the (overdrawn) balance on the loan account represents the amount you still owe including interest accrued up to the relevant date.
I’m not going to try and guess how best to handle depreciation and capital allowances, that’s best left to your own accountant.
Edit: and if you’re VAT registered then definitely double check this with your accountant, as it’s a big chunk of VAT to reclaim in one go and you need to be sure you’re doing all that correctly.
Doing it that way will show rather a large dent in my annual profits if I create a purchase order for the full price of the vehicle - is that correct or would I just enter the monthly costs of the “loan” as purchase orders for the next 60 months?
I am not vat registered and am self employed - and also do not have an accountant. Completing my own self assesment tax returns etc which so far has been fine - just the issue concerning the vehicle that I thought best to ask about and how to enter it into quickfile.
When you create the purchase invoice you would choose 0050 Motor Vehicles as the nominal code, which will show as an asset on your balance sheet rather than an expense in your P&L. The interest you pay on the loan would go to P&L (7903 Loan Interest Paid) but the capital expenditure would not affect your P&L immediately, only as a result of depreciation over the next five years.