Depreciation and Capital Allowances are two different things.
You’ll see a Depreciation Charge in a set of accounts. Depreciation is the accounting method of writing off the cost of an asset over its expected life.
You will see a Capital Allowance claim in a tax computation. Capital Allowance is the tax method of doing the same.
Capital Allowances are, at the end of the day, what matters when you are looking at the tax implications of buying an asset.
For a business to be able to claim Capital Allowances on a particular asset it must:
buy the asset outright
or buy the asset using a bank loan
or buy the asset using an HP agreement
A business cannot claim Capital Allowances on an asset if it acquiring or using the asset using a Lease Agreement or a Rental Agreement
At the moment, there are very generous Capital Allowances available on certain types of assets, including vans.
A van costing £20,000 would definitely be eligible for the 100% Annual Investment Allowance (at present up to £250,000 on plant and machinery including vans) but only if it bought outright or purchased using a bank loan or HP.
You cannot claim the AIA if you lease the van or rent it.
If you do lease the van, tax relief is claimable but in a different way.
If the lease is a Finance Lease (which looks a bit like an HP but is NOT an HP) you will be able to offset the annual finance costs (the interest, not the full repayment) against your annual profits.
You will also be able to offset the annual accounting depreciation charge (one of the very few cases where HMRC allows depreciation as a tax deductible cost).
If the van is being paid for on a monthly rental scheme (Contract hire), you offset the whole monthly rental costs against the annual profits, so giving 100% tax relief as long as you are making a profit.
As you can see, with leases and rentals, the tax relief will be spread over the length of time you are making the monthly payments to the finance company.
If you buy outright or buy using a bank loan or HP, you can get instant tax relief up to 100% in the first year which might be more beneficial to a startup business.
If buying with a bank loan or HP, you will also get tax relief on the monthly loan interest or HP charges.
Call Alan or Andrew at Wilmoths Van and Business sales centre 01424775111 or 07888820207 for assistance in making your hard earned capital work for you not the taxman.