Sale of vehicle

[Badger]

Hello. A little help please. I started my gardening business last year and bought a van for £1750. In my self assessment for last year I’ve written the full amount of fusing my AIA claiming the maximum tax relief. I’ve now sold the van for scrap receiving £398 for it. How do I record this payment please.

[ian_roberts]

How did you record the original purchase in your accounts (as opposed to your tax return)?

For tax purposes you will probably have to treat the whole scrap value as income (a “balancing charge” in capital allowances terminology) but how you record it in QuickFile depends on how you handled the original purchase price.

[Badger]

Thanks. I recorded it as a vehicle purchase (asset)

So the scrap money I’ve now recovered as a sale so I’m guessing that will automatically count towards my profit for this year and I will be taxed next year accordingly on that amount?

[ian_roberts]

What you say on your tax return and what you record in QuickFile are two different things. For tax purposes you say you claimed AIA on the full £1750 last year, so when you submit this year’s return you will add the full £398 to your taxable profit as a “balancing charge” and pay tax on it as income, that’s nice and easy.

But for your accounts in QuickFile you are still supposed to depreciate the asset over its useful lifetime. When you recorded the purchase as an asset that will have put the £1750 onto your balance sheet, not your P&L. At your last year’s year end you would then have made a journal for the year’s depreciation, debiting the P&L depreciation code and crediting the balance sheet one - your balance sheet then shows the net book value of the asset (purchase cost minus accumulated depreciation) and your P&L shows an expense for the depreciation for just that year.

Now you have disposed of the asset you would record the scrap value as a sale on the “sale of assets” nominal code. Then create a journal that reverses the original asset purchase (credit £1750 from the “motor vehicles” asset code) and the accumulated depreciation (debit however much you depreciated it last year off the balance sheet “motor vehicles depreciation” code), and posts the balancing entry (another debit) to the same “sale of assets” code as you used for the scrap value. This removes the asset from your balance sheet, and “sale of assets” will be the gain or loss on disposal - the amount you sold it for minus the net book value at the time of sale, likely a loss in this case as you won’t have depreciated £1300+ in the first year.

Like I say when it comes to your tax return you have to add back all the depreciation / gain or loss on disposal stuff from your QuickFile numbers and then calculate capital allowances and balancing charges instead.