A client has only been trading for 6 months but had decided to dissolve it but will do it at the end of his company financial year. He has sold some computer equipment to his company (£800) and withdrawn the money from his company . As you can't claim the AIA whats the best way to deal with this?
Hi Georgie
Question is - what will happen to that computer equipment when he dissolves the company? Will be buying it back? You need to be careful about the value it is bought back at given its only a recent purchase. If its a sale to a third party - make sure its arms length and documented in the usual way.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I think he will buy it back from the company. But seeing as he can't claim AIA so there is no taxable benefit could I reverse the entry - and they put the money back that they sold it to the company for?
The first thing I would do is use Ebay, or the like, to get a rough idea of what the equipment could be sold for today, print that off for your records, and then you can decide if it is worth bringing the assets into the company - if no benefit, just journal the £800 out of asset additions, and put it to DLA.
To decide if there is any benefit, you will want to compare the market value with the tax written down value. If it is going to be of benefit to you client, you would then...
Bring the £800 into the accounts and calculate 6 months depreciation - at 33% (£132), giving a net book value of £668. You would then dispose of the assets to the PL, which means £668 will appear as a loss on disposal of fixed assets (debit balance). You would then journal in the market value of the assets, a credit that needs to go to this account to reduce the "loss" (and the debit will go to DLA).
For tax purposes, you adjust profit for the depn and asset disposal value on the PL. Then you claim 18% CA's for 6 months (£72) - this will give you a tax written down value of £728 - your ebay/market value needs to be lower than this to gain any benefit.
If lets say you find they are worth £600, then you would create a £128 balancing allowance. His overall tax saving at 20% would be £40
If you find the market value is about £700, I wouldn't even bother and just omit the assets altogether.
As Jo says, you have to be very careful about valuing assets, especially when sold back to the director. You can see that he only gains £40 from a £600 market value - and it might be unlikely that you could get that low a figure, so it may just be a waste of time even bothering.
Has the company made any profit? Will you be voting him a dividend so that he can draw the leftover bank balance? There wont be any prepayments, your accrual will effectively be paid by him, so you would end up with a NIL balance sheet, everything going through his loan account? Not really had much experience with closures, to be honest. A client who is currently closing his company had to go through liquidators, so they are sorting it all out. My other client, who has just applied to strike off, had a balance sheet that only had assets and his loan account, which was a credit that would never be recovered as the bank was NIL. I wrote out the assets to him and left the DLA credit on the balance sheet (think reserves were negative too)
Hi
Sorry didnt mean to ignore you yesterday - internet was bouncing me off every 2 minutes, drove me mad!!
Only experience I have had is where the business owes just the Director, no other creditors so was able to achieve a strike off. Otherwise they have, as Michelle says, had to involve an insolvency practitioner.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
