# Tax implications on the sale of a fixed asset



## gilboy (15 Jan 2009)

Assume the following:
John is self-employed and registered for VAT.
In 2005, John purchases a van for business and claims back the VAT which he paid on the van.
Over the years John has been depreciating the van @ 20% against his profits.

In 2009, John decides to replace the van. If he sells the old van for 5,000 he should charge VAT on the sale of the van and add this to his T1 value in his next VAT return(i.e. 21.5 % of 5,000) , right?

Secondly in terms of the income to the business for 2009, should he include the money received from the sale of the van(5k) in his 2009 earnings?


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## Domo (15 Jan 2009)

He should show the loss/gain on sale in his P&L.
This should then be adjusted for tax purposes.

Note he should have disallowed the depreciation and claimed Capital allowances at 12.5% each year against tax.

He needs to work out what the written down value is in year of sale and then he will create either a balancing charge or balancing allowance.

The VAT he should pay over will be €5,000 x 21.5/121.5 = €884.77, as the sale price of €5,000 will include the VAT.


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## gilboy (15 Jan 2009)

Thanks Domo

Just wanted to seek clairification on something you said in your previous post - 



> Note he should have disallowed the depreciation and claimed Capital allowances at 12.5% each year against tax.


 
When you mentioned *disallowed*, might just be semantics but confused me a little. Far from an accountant myself, so does that just mean the accountant should have offset 12.5% of the asset(i.e. cost of original van less VAT) over the past number of years
Thanks


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## extopia (15 Jan 2009)

Basically, yes.


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## Graham_07 (16 Jan 2009)

There is a difference between what one might deem appropriate to claim as depreciation in the accounts for a motor vehicle and what Revenue allow. Historically motor vehicles might have been depreciated by say 20% pa but Revenue only allow ( since 2002 i think ? ) 12.5% pa. So the accounting profit needs to be upwards adjusted to add back the depreciation then claim the 12.5% instead. The result of this is the profit for tax purposes will be higher than the accounting profit.


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