A friend of mine is a builder and was operating as a self employed sole trader when he purchased his van which has always only been used exclusively for his work. 3 years ago he claimed an AIA as a sole trader.
He is now operating as a Director of his own Limited company (sole Director and shareholder) instead of self employed due to the tax benefits. He has kept his UTR self employed number because he has been told that he will need to file a self assessment tax return as well as a Company tax return. He is still using the van for the limited company. My questions follow:
1) Can he sell it to the limited company at NBV and what makes this official, telling DVLA and registering the van in the company name?
2) and if he can, is he allowed to enter the sale as a Debit in the asset account and a Credit in the DLA? So company owes him.
4) The sale price will be about £4,000. someone told him that he might have to pay personal tax on the sale of the van because he claimed an AIA as a sole trader?
He purchased the van for £19,000 about 3 years ago and it is now only worth about £4,000. So if he enters the £4,000 as a debit in the asset account and a credit in the DLA will he have to pay 20% personal tax of £800?
Or do you only pay personal tax if you make a profit on the sale of the van? ie paid £19,000 but sold for 20,000 you would pay tax on the £1,000 profit of £200?
5) Is the company legally allowed to claim an AIA on the second-hand purchase price of the van? or is this not allowed because it is "connected"?
This is crucial that he does this correctly otherwise a lot of unnecessary work and penalties!
Hi
Firstly - can you please introduce yourself. Name? Are you this chaps bookkeeper and let us know what qualifications you have so people know how to pitch the answer.
Welcome btw
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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
Yes I am helping a friend I am a bookkeeper qualified in Sage 50.
Although a qualified accountant will already know the answers, and it may be the case that we will have to see an accountant but I am curious and I suppose you could say interested in learning. I don't see any harm in trying to understand something better before I approach an accountant!
I would be great if some of my questions could be answered and much appreciated.
If his "sole trader" business sells the vehicle to the business, then the "sole trader" puts the "proceeds value" on the tax return as a balancing charge. The tax that may be due is dependant on his overall income, as the balancing charge increase potential income from the business.
The cost to establish the profit on the sale of anything is based on the purchase price, less any expenses claimed against it. So If a van cost £19,000, and AIA is claimed for £19,000 anything received is profit, as the van has no cost left to claim as a expense against the sale proceeds.
No the company cannot claim AIA as it is connected. It goes into the pool, and CA claimed under pool rules.
Thank you, you have helped me understand a lot more and I definitely will not make a mistake of allowing the company to claim an AIA, so thanks again :)
Hi Maxine
So sorry, only just got back to this one, but can see others have responded. I agree with Johnny......your friend should get an Accountant and this goes beyond cap allowances and could end up costing your friend a lot more if it's done wrong.
From your perspective, be careful the 'advice' you are giving as without suitable qualifications you could be going against your PII cover.
Should you wish to keep expanding your knowledge base.....have you given any thought to perhaps completing the AAT for starters?
__________________
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
