Capital Depreciation on Commercial Vehicles

Why it makes sound business sense to purchase a commercial luxury 4x4 for your business.


100% VAT Re-claimable

Firstly you can reclaim 100% VAT thereby reducing capital outlay on your new vehicle.

Personal Car Tax: although the threshold has been increased from £500 to £3000 p.a., for those employed by their company driving a commercial vehicle can still realise a 60% discount on the 2007 £3000 p.a. figure. Therefore in reality it should be confirmed that your personal tax has only increased from £500 -£1200 p.a.

Experience has already shown that where the end user has a tangible requirement for a 4WD Commercial Van i.e. for towing/delivering heavy plant and equipment, or products as part of their business or carrying bulky specialist equipment of tarmac – needing access to off road situations, that obviously would not be accessible to a conventional vehicle, then a 4WD Commercial vehicle would be acceptable as a requirement for the business user/employee and thus be justifiable. Confirm where you stand with your company accountant, as if the vehicle is used solely for business – no private use, then no company car tax may be payable. Some accountants may agree a percentage of the £3000 tax threshold payable due to some private use.

Capital Depreciation. There is a great opportunity to make your new vehicle purchase work for you by means of depreciation of the capital purchase value. Up to 40% of initial pre VAT Value can be written back in year 1, thereafter a further 25% of the nett figure can be written back in each subsequent year thus saving the company substantial tax liability. For small to medium sized businesses this can create further opportunity as if the vehicle is still in good condition with average mileage, due to it’s high residual market value you would have the opportunity to market the vehicle to release higher capital value.

4 year Commercial Vehicle Depreciation Example

Capital purchase price (Pre VAT) £25,000.00

  Tax Claimable Written Back Value
Year 1 Depreciation @ 40% on £25,000.00 £10,000.00 £15,000.00
Year 2 Depreciation @ 25% on £15,000.00 £3,750.00 £11,250.00
Year 3 Depreciation @ 25% on £11,250.00 £2,812.50 £8,437.50
Year 4 Depreciation @ 25% on 8437.50 £2,109.38 6328.12
Therefore the written down value after 4 years is £6,328.12
Vehicle can be sold out of business for £7,680.00
VAT £1,344.00
TOTAL £9,024.00
VAT repayable after sale of vehicle.    

However, it is likely that the true resale value could be if the vehicle meets with the above criteria and is in A1 condition and average mileage.

NB Any small/medium size business with a turnover of less than £5.6m p.a. could write back up to 50% in year 1.

Your personal company accountant would advise accordingly as to the relevant Inland Revenue schedule applicable to your business.