The apparent lack of a transfer between two legal entities is a significant concern. I would possibly recommend, depending on other circumstances, reinstating the struck off company to complete a legal transfer of both the asset and the finance liability. I wonder also how the tax affairs of the dissolved company were properly concluded without the assets and liabilities being cleared first?

Were the finance company told of the transfer and did they issue a new lease in the name of the new company? If not, they could turn up to repossess their asset in case the Crown Commissioners get there first!

HMRC also could have an issue with giving any tax relief to the new company (either CA's or relief for the finance cost) if the new company is paying for a lease that is in the name of the old company, regardless of whether the business is using the van or not.

I would hope also the dissolved company wasn't VAT registered at the time the van was transferred, as it would likely be subject to VAT on the transfer value.

This is a not uncommon problem where a trader doesn't fully understand the difference between trading as a sole trader and through a limited company. If he were a sole trader, the vehicle would be in his name and the transfer from one trade to another would be simple.

Ah yes, that makes all the difference! You can forget about reinstating the old company. It still isn't straightforward though. If the vehicle lease is in the name of an individual the vehicle wasn't actually a business asset at all, in either company. It's important to remember a limited company is a separate legal entity to it's owners or employees.

The owner wouldn't be able to sell or transfer the vehicle to the business until the finance was paid off, as no doubt the agreement didn't transfer title until it ended to prevent the owner disposing of the asset the lease was secured on. Like any other personal possession however, the owner could use it or allow it to be used in the business in the meantime. You assume that the tax position of the vehicle owner is straightforward, as it isn't provided by the business for their personal use so there is no benefit in kind. The problem is however that the business was paying the interest and capital repayments on behalf of the owner. I think that counts as payments being made on behalf of an employee. The fact that the business had exclusive use of the van means that the owner is entitled to receive a rental from the business for it's use, and the facts here would indicate the rental was equal to the finance repayments as no cash changed hands.

Unfortunately I don't think HMRC would resort to common sense and agree that the legal owner received no economic benefit, nor do I think they would agree that the business could claim capital allowances and a corporation tax deduction for the interest cost of the lease payments. The way this has been done has stored up a whole heap of possible problems for both the business and the owner of the van!

The van owner has in effect been renting the vehicle to a business, and that rental income should have been declared on their self-assessment tax return. That would have been offset by the owner claiming capital allowances and the interest expense. Rather than the business paying the lease costs directly, the owner should have paid them, funded by the rental payments from the business. The business would simply claim 100% of the rentals paid to the owner as an allowable expense in the corporation tax return. HMRC wouldn't have a problem with that, so long as the rentals were at a market value and couldn't in any way be considered disguised remuneration (by that I mean an arrangement, for example, where an employee is paid a wage of £100 a month but rents their ten year old van to the business for £3,000 a month, that would not be OK!). The rental payments would actually be good from the point of view of the business, as they would in effect get an immediate tax deduction for the capital repayments as well as the interest. When the finance was paid off and title passed to the owner they could then stop charging the business the rental, and sell the vehicle to the business either at market value or at it's tax written down value or of course any figure in-between. Only then should the van appear on the fixed asset register of the business with a value of whatever they paid the owner for it on transfer to them. The liability of the lease should never appear on the business balance sheet, as it is never a liability of the business. That's easy to understand if you imagine what would happen in the circumstances of a default on the lease. The finance company would pursue the owner for the overdue payments, and would have no interest in the business regardless of which bank account previous payments had been made from.

I know it is zero help to say at this stage the owner and the business should have taken advice before buying the van in the first place, but you can see why they should. I think the business owner and the employee who owned the van should speak to their accountant about this urgently, and consider whether the tax returns of the business and the employee should be reworked or whether HMRC should be approached in an attempt to get their agreement to taking a more pragmatic view. They're not renowned for their pragmatism however, particularly if there is a prospect of penalties to top up their coffers! The current penalty regime gives a lot of credit however for a taxpayer that contacts them with a problem, rather than it being discovered on an inspection.

This story also indicates how dangerous seeking detailed advice through a forum like this can be, if full and accurate details are not disclosed. The original respondent gave a full and accurate response to the information given, but that was nowhere near the full story. I'm new here so probably haven't read yet all the stickies about the risks of taking advice through a public forum, where you don't have the usual protection of a professional relationship defined by a letter of engagement with professional indemnity insurance backing that up. Information or advice given here will only ever be as good as the information you provide in the first place, so poster beware I guess!

Good Morning Stephen,


Thankyou very much for your detailed and knowledgable response, Apologies for not presenting you with the full picture to start with. Everything you have said makes perfect sense and will be addressed. what a lovely welcome message you received from our forum moderator and expert! I am afraid I have broken with tradition by not introducing myself, suffice to say I have no where near the same level of experience as you! My reluctance to state my professional capacity is to learn and apply and not feel my questions/responses are being "scored".


Thanks again


Donna

Thankyou, Yes, can see this forum will be a valuable resource

But advice given off site only helps one person.

I'm glad that your issues have now been resolved but in order to assist others could I ask that questions and answers be posted on the site in order to assist all who may hit similar situations.

kind regards,

Shaun.

Hi Donna,

the requests to PM are not that widely used but are occasionally necessary. I had to use one the other week as I needed to answer a poster with an answer that whilst technically correct and completely legal was a bending of tax regulation that I didn't want to post on the site.

There are also cases where people are working with each other off line, for example building websites or subcontracting work and it would be inappropriate for those links to be widely known on the site.

I have also asked people on the site to talk to me off line about intimidation that they have received so that I am able to sort these matter out off the radar.

Addressing posts to specific members on the site will sometimes still bring responses from other members. For example, one poster on this site will start their posts with @Neil or @Kris. I generally ignore that especially where the poster or the subject matter needs defending (not that either of those two need defending).

The great thing about the forum approach is that the subject matter is such that there are often several correct answers. Take the recent cost of sales / jewelry box question as a good example. Very simple question but many different and all completely correct answers. Similar case with the VAT on Red Diesel question. That one had one correct answer but several different ways of interpreting the HMRC guidance.

One of the things about the site though is that whilst almost everything gets answered the contributors to the site are practicing accountants and bookkeepers so who answers the question and when can be a lottery.

As a rule of thumb its not a great idea to ask a question in January or April (which ironically is probably when most people need to ask questions). Other times of the year occasionally hit perfect storms where either everyone is busy or as we hit a few weeks back everyone is embroiled in one thread meaning that others didn't get the attention that they deserve.

In all instances though people will get to you unless the post falls off the recent posts first screen in which case it needs to be bounced if it has not been answered.

hope that helps,

kind regards,

Shaun.