1. First, there a number of methods of calculating the HP Interest such as straight line and sum of the digits. The sum of the digits method will lead to an higher charge in the early years of the HP agreement and lower in the later years.
I would also include an accounting policy note in the accounts to explain which method you have used;
2. Make sure you make a deduction for the private element of the HP Interest.
-- Edited by Truemanbrown on Tuesday 29th of May 2012 06:23:34 PM
One of my clients is a driving instructor, who got a car on hp then had the car signwritten and I have included the car as an asset written down over 5 years.
At the moment he is still employed part time and uses the vehicle to get to and from work so the ratio of private to business mileage is about 60%.
I am undecided as to whether I should include the interest on the hp when I do the private use calculation, or on the depreciation of the car, could someone please clarify?
When doing the tax comp you should add back the relevant private use % of all motor costs eg petrol, insurance, repairs, mot, etc (assuming of course you have put through the total cost). You should also make the same adjustment for HP interest.
Doesnt make any difference what you do to the depreciation as it will be diaallowed from a tax viewpoint and you will be able to claim capital allowances. Again you would need to disallow the relevant proportion of private use re capital allowances.
When doing the tax comp you should add back the relevant private use % of all motor costs eg petrol, insurance, repairs, mot, etc (assuming of course you have put through the total cost). You should also make the same adjustment for HP interest.
Doesnt make any difference what you do to the depreciation as it will be diaallowed from a tax viewpoint and you will be able to claim capital allowances. Again you would need to disallow the relevant proportion of private use re capital allowances.
Regards
MarkS
Thanks Mark. I suspected it was the case and have been meaning to clarify it for some time. Understood on the capital allowances.
