Feedback on Question 3 (Cars)

This question was in two parts.

The first part asked about benefits-in-kind.

The second part asked about capital allowances.

Benefits-in-Kind

Some of you attempted to calculate the appropriate percentage from first principles (using the formula you learnt in Semeseter 1). This lead to errors in many cases. A more reliable method is to use your Tax Tables. Once you have identified the tax year, CO2 emissions, and fuel type you can simply look up the percentage.

Another problem area was the treatment of employee contributions. You need to distinguish between capital contributions towards the cost of the car and annual contributions towards the running costs. Within limits, capital contributions are deducted from the list price. Annual contributions are deducted from the chargeable benefit for the year.

HMRC have produced a working sheet to help employers calculate the taxable benefit on the cars they provide to their employees. You may find it helpful to make a note in your Tax Tables of the 8 steps for caluclating the chargeable car benefit. It should help you avoid some of the other common mistakes, such as reducing the benefit where the car is only provided for part of the tax year, or adding the cost of accessories to the list price.

Step 9 of the working sheet reminds you how to calculate the car fuel benefit.

Capital Allowances

Not everyone attempted this part of the question which meant that 6 marks were automatically lost. Of those who did try it, quite a few of you did not answer it in full. The question asked you to calculate the capital allowances for a number of accounting periods (APs); some of you only provided an answer for the first AP.

The hire purchase aspect caused a few problems.

Where plant or machinery is paid for in instalments you can immediately pool any deposit paid and any instalments due wihin 4 months. For later instalments you need to check carefully what AP they are due in and you may have to delay allowing them until the AP in which they are actually paid. However, once an asset is actually brought into use you can treat all future instalments as being paid on that date.

Don’t forget that capital allowances on plant & machinery are given on a reducing balance basis. The rate of allownce depends on whether the asset goes into the general pool (low and medium CO2 emission cars) or the special rate pool (high CO2 emission cars). The threshold for what counts as a high CO2 emission car has changed over the years – the details are in your Tax Tables.

David

 

 

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