Is a Van 100 Tax Deductible Sole Trader?

VAT reclamation is the most obvious form of tax relief that businesses can benefit from. If your company is vat registered, you can reclaim the vat spent. 

For example, if a brand new van costs £30,000 inclusive of VAT, your business can claim back £5,000, 20% of the total cost.

Tax relief on van purchase sole trader

Every company in the UK is entitled to Annual Investment Allowance (AIA) – meaning you can deduct certain expenses from pre-tax profits, thus giving you tax relief on a purchase. 

AIA rules are stringent for what can and cannot be claimed back. For instance, ‘Integral features’, ‘ fixtures’, and ‘plant & machinery’. Commercial vans fall under the category of ‘plant & machinery.’ 

You could save thousands of pounds by claiming the total purchase price through AIA; 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%.

The best way to buy a van self-employed

A van, or even a small fleet of vehicles, is a significant financial commitment that smaller companies and the self-employed must take special care of to keep within budget. 

Finding the correct kind of funding is essential because small and medium-sized businesses (SMEs) lack the purchasing power of large corporations, and sole traders must pay for their automobiles out of pocket.

Leasing a van

Because it’s straightforward and everything is included in a single monthly payment, big firms choose to lease their vans. The charges are considerably more manageable because you won’t have to make a sizable upfront payment as you would when purchasing a car and will need to pay a small deposit. The same is true for small enterprises and self-employed traders.

Most lease agreements, though not all, include insurance and a maintenance package, making it possible to combine the expense of almost everything but fuel into a single monthly payment. 

If your company is registered for VAT, you can recover some or all of the VAT you spend on the monthly lease charge if the van is used for commercial reasons. 

It’s crucial to note that some van lease agreements may be marketed without VAT.

Van on finance for self-employed

The benefit of purchasing a van is that you can utilize it in any way you want because you own it all together. It also becomes a corporate asset. No mileage or other restrictions are associated with leasing a car, and you can sell it whenever you want.

It is sometimes more cost-effective to purchase a van than lease one. Because you aren’t paying a monthly leasing rate, which includes a layer of profit for the financing business, you’ll pay less if you retain it for the same length of time as a lease contract.

While it still occurs if you finance your purchase, leasing prevents you from owning the van at the end of the lease. Additionally, there are tax benefits: if the van is used for business, the capital allowance can be deducted from your tax liability.

What can I claim as a sole trader?

If you buy goods or services for use in your business as a sole trader, you can get the VAT you paid back. But what if you split the cost of your product or service between personal and commercial use? 

In such circumstances, you are entitled to a refund of the percentage of the VAT related to the taxable supplies made by your company.

For instance, if you own a mobile phone and use the same contract for personal and business use, you can recover the VAT paid on the cost of the phone or the contract for business use.  

For more information regarding VAT, tax reliefs and reclaims, visit us at Pearson and McKinsey.