I signed in a few months back as ‘taxman’. I’ve been meaning to provide some advice to owner/drivers but i didn’t get around to it
Basically the advice I have concerns the preparation of accounts for Drivers. It may have been covered before but anyway it’s worth a refresher.
Owner Drivers should be accruing ‘provisions’ when preparing their accounts when, at their year-end, they have a quote for repair work necessary on their vehicles.
Say for example you’ve been running the lorry 24/7, then at the end of the accounting year an owner driver should take their vehicle to their usual garage (if possible) and have them do an estimate for any repair work required. This figure should then be added to the repairs paid figure in the accounts.
However, when you pay the repair bill in the following year you will not be able to put the cost of the repair through in to following year’s accounts, only the amount by which the actual repair bill exceeded the provision.
So, for exmple, a driver has a 30 November year end, he has spent out £5,000 already in repairs in the year. Realising his lorry is running rough he goes to his garage and gets a quote, they estimate £10,000 for the repair bill and at the same time the tyres will need replacing and estimate a further £4,000 for those. When preparing his accounts he needs to add these provisions to the actual expenses paid out so the deduction for repairs become £5,000 + £10,000 +£4,000 a total of £19,000 instead of the actual cash expenses of £5,000.
Now in the FOLLOWING year when preparing his accounts he has cash expenses of £30,000 for repairs, now assuming the garage bill equalled the quote, then the actual amount he would claim would be £30,000 LESS £14,000 a total of £16,000. Of course, if the driver obtains a quote at the end of the following year then he would be able to make a provision for those repair expenses.
Please note this should not be confused with a normal accrual where an invoice for work done is issued before the year end but not paid until a few days after the year end.
I have made reference to garage quotes as these would be best evidence in the event of a Revenue challenge, however there is nothing to stop an owner driver making the estimate, but he must be able to show how he arrived at the figure. So for example, he could not say ‘I reckon it’s going to cost £6000 to repair’, his quote would have to be constructed along the lines of :-
Alternator £400
Interior lamp £200
Headlamps £500
Panel damage £750
and so on
What’s the advantage, well it ensures that the costs of the year are properly reflected and accelerates the relief for those expenses. This is particularly important if the following year is particularly poor as it may mean the difference between relief for those expenses at 40% instead of 22%.
I will have to include a disclaimer, this piece has been written for information purposes only and should not be relied upon without taking professional advice first. I accept no liability for any reliance or use made of the information contained herein.
Many Thanks
Taxman
Yes thanks for the help. Can we expect advise on a regular basis, please!