Everyone understanding of this seems a bit woolly so:
you buy the van, you can reclaim the VAT (if VAT registered). The HP interest is an allowable expense. This is apportioned by taking the total interest payable and spreading it over the life of the hp so more interest is attributed to the first year where the principal loan sum is higher.
Whilst the van goes on the balance sheet and is depreciated (which is what you'll see in the accounts) the depreciation is not actually an allowable expense. Instead you get "capital allowances" which is what people are hinting at.
Works like this:
buy van for £5000
At the end of the first year you get a "first year allowance" which is currently 50% (this varies between 40-50%).
Every other year the balance is written down on a reducing balance basis at 25% until it disappears
Year 1: 50% first year allowance = £2500
Year 2: £2500 (remaining balance) x 25% = £625
Year 3: £1875 (remaining balance) x 25% = £468.75
Year 4: £1406 (remaining balance) x 25% = £351.50
And the above goes on and on until the balance is zero, or you sell the van
When you sell the van the the sales proceeds are compared to the remaining balance. Where too much capital allowances have been given, you have to pay a "balancing charge" which actually gets added on to your income! Too little and you get a "balancing allowance" which is an additional deduction.
Basically you always get deducted from your taxable income the amount the van falls in value whilst you own it.
Carefull about cars, they are treated a bit differently (no first year allowance and the yearly writedown is resricted to £3000)
Also best to get the van right at the end of your tax year, you can own it for only one day and still get 50% of it's value written off your income.
Hope this helps, a bit difficult to explain on a message board!
