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According to the rules we know that when motor car has a percentage on private journeys ,we deduct that percentage and find out percentage on business use.
Example- long Ltd purchased a motor car for £15700. The motor car has a co2 emission rate of 122 grams per kilometre. The motor car is used by the managing director of long Ltd, and 40% of the mileage is for private journeys.
Calculating capital allowances I did =15700*18%*60%[as 40% is for private journeys]But in the answer they did = 15700*18%
Why they dint multiply with 60% ?
Plz make this clear to me.
Thanks.Hello Farzana,
Hope you don’t mind me answering your question. The private journey in the question is not relevant because managing director of the company is regarded as employee. The rule says private use of an asset by employee has no effect on capital allowance computation. After all, the employee will be charge on his income tax for the benefit anyway. However, If the 40% mileage is for the business owner, then the 60% will be charge to reduce capital allowance to the proportion used.
Hope it’s clear enough. Wish you good luck in your exam.
Private use restrictions are only applicable when it is private use by the owner of an unincorporated trade, so you will only see this in an income tax question
I just have one question regarding the private use of a car by the sole trader. What happens to the private part of the cost? In capital allowances we only include the business part of the cost, but still we also have the private part.. And does it mean that overall (accounting depreciation) won’t be equal to the capital allowance regarding the asset that was partially used for business and privately?
Capital allowances are NEVER likely to be the same as depreciation whatever assets you are dealing with – that is why we disallow depreciation in the adjustment of profit and replace it with a deduction for capital allowances! Have you worked through the OT notes and lectures?
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