Please could someone clarify the following for me:
. Van purchased Nov 2015 for £1,162.50
. Capital allowance claimed for full amount on 15/16 SA tax return
. New van was purchased in March 2017 for £6,500 but old van part exchanged to the value of £250 bringing cost of new van down to £6,250
. A loan was taken out for payment of new van.
What are the implications of the above for claiming AIA or Capital Allowance on the new van purchased? Does my client claim £6,500 or £6,250? What is involved in the fact that old van had capital allowance claimed but was then part exchanged?
Just to confuse matters my client was a sole trader up to 23/02/2017 then his business changed to a partnership from 24/02/2017 so the new van was actually purchased under the partnership does this change anything?
Normally I would say that the part exchange would be a disposal of the old van of £250 which can then be removed from the balance sheet and an addition of the new van of £6500 so you would claim AIA of £6500 minus the disposal proceeds
Are the partnership now or the sole trader then VAT registered?
Is there any mention in the partnership agreement about the old van?
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Seeing that there is no mention of the old van being introduced into the business within the partnership agreement I would account for it as the partnership buying the van from the sole trader for £250 which judging from the part exchange date would give a rough idea of MV, the sole trader would then have to account for this as a disposal in his SA and the partnership would own the van from which they can claim CA.
On the purchase of the new van the partnership would then have a disposal of £250 but then be able to claim AIA for £6500.
In regards to claiming AIA my understanding is that this would have to be done via the partnership tax return before the allocation of any profits/losses to the individuals involved.
I would be careful of using the whole AIA if it is going to eat into the partners PA you may be better off carrying some forwards to next year as WDV
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Thank you, that has really helped me get a grasp on this.
If my client did claim the whole AIA it would mean that the partnership would make a loss so would he be able to off set his percentage of that loss against his sole trader profits?
Thank you, that has really helped me get a grasp on this.
If my client did claim the whole AIA it would mean that the partnership would make a loss so would he be able to off set his percentage of that loss against his sole trader profits?
Hi Jill
The partnership loss should be allocated between the partners at the agreed profit/loss sharing ratios, the partners will then be treated as sole traders for tax purposes.
Once the loss has been allocated each partner can then claim their own individual loss relief in whichever way will be the most tax efficient.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Not really read this properly as I can see Doug has it (and as usual not got my glasses!) and I did have a link to add, but I seem to have lost it, so try this one instead (as well)
Hi Jill I'm not sure why you are trying to move something from the sole trade to the partnership, but there is not enough info here. What was the year end of the sole trader? Why did he elect to start the partnership mid tax year? Who is the incoming partner (wife?), is it the same trade the partner has joined or is it completely different? What does the partnership agreement state in terms of profit share and the asstes, specifically the old van? Who has actually bought the new van....partnership business account or is this effectively the capital intro of one of (new?)partners?
Did the sole trader elect to cease his business with HMRC (can you still do that?) and then register the partnership? I suspect not and that this is just a continuation of trade with the intro of a new partner, so process the addition of the partner in the usual way and deal with the van disposal in the usual way, subject to whatever is in the partnership agreement (and if they haven't got one then what a pair of numpties and refer them to an Accountant, or given the passage of even this short amount of time, a lawyer, immediately to get it sorted).
Sorry internet off for couple of days, now intermittent. Bt denying a problem, yet it's happening all over the area and Open Reach vans are blocking roads! Don't need to be Sherlock to realise they are fibbing a wee bit. Thank gawd I don't have zero smeero rubbish!
-- Edited by Cheshire on Saturday 15th of July 2017 07:45:37 AM
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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
From what I gathered there was no mention of the van in the partnership agreement.
Al I was trying to show was that the van would be shown on the sole trader accounts as an asset but disposed of from the partnership accounts, as I had assumed (maybe wrongly) that the new van would have been purchased through the new partnership business bank account.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Hi Doug Im assuming 50/50, wife, agreement not mentioning the van and so I think we concur, it was just that Jill requested the entries to move the Van from the sole trade to the partnership and there will not be any movement if its continuing trade, but wondered if that was understood.
edited to correct typos
-- Edited by Cheshire on Saturday 15th of July 2017 09:12:35 AM
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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
Hi Doug Im assuming 50/50, wife, agreement not mentioning the van and so I think we concur, it was just that Jill requested the entries to move the Van from the sole trade to the partnership and there will not be any movement if its continuing trade, but wondered if that was understood.
Hi Joanne
Jill requesting this is my fault as for some reason (bad day) I suggested selling the van to the new partnership it is only now that reading back through all the posts that it is perfectly obvious from the OP that his business is only changing to a partnership so the trade will be deemed to be continuous. (Unless I have completely misunderstood again)
Hi Jill
Sorry for that, have a look at BIM82200 it might be of help in answering some of the questions that Joanne has asked
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Hi Doug
Ahhh no worries, happens to us all but I must admit that I still hadnt even read the earlier posts TBH as I was still phone and broadband-less, out shopping and on the hunt for a BT hotspot and once again vainly left my glasses at home (and realising how very bad my eyes have got!) but I just spotted Jill's 13th July comment.
We are of course both making the assumption that the trade is deedmed continuous in the absence of Jill updating us at this stage anyway so perhaps we might get some FI.
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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
In this instance does the old van come under disposal of chargeable assets?
Hi Jill
Don't chargeable assets apply to Capital Gains Tax?
My opinion is that the disposal (AIA fully claimed) should be deducted from the main pool, if there is nothing in the main pool then this will give rise to a balancing charge.
Might be good if you could give some answers to the questions that Joanne asked especially the year end as this could have an effect on the incoming partner/partners as in basis periods and overlap profits
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
What was the year end of the sole trader? 23/02/17 as the Partnership started on 24/02/17
Why did he elect to start the partnership mid tax year? On advice of accountant.
Who is the incoming partner ? Wife
Is it the same trade the partner has joined or is it completely different? The same trade and name.
What does the partnership agreement state in terms of profit share and the assets, specifically the old van? Agreement is still being drafted but will state 70/30 (husband/wife) share of the profits. As yet I can't see any mention of the old van in the drafted agreement.
Who has actually bought the new van....partnership business account or is this effectively the capital intro of one of (new?)partners? Van was financed by part exchange of old van and a loan in the name of the sole trader.
Did the sole trader elect to cease his business with HMRC (can you still do that?) and then register the partnership? No sole trader didn't elect to cease his business.
-- Edited by jillemily on Friday 21st of July 2017 10:26:13 AM
-- Edited by jillemily on Friday 21st of July 2017 10:26:50 AM
-- Edited by jillemily on Friday 21st of July 2017 10:27:37 AM
He doesn't actually have an accountant, I think the accountant is a friend that he asked some advice form
Hi Jill
So I take it that you are in effect his Accountant and will be doing the final accounts and submitting the returns.
Just be aware that if the end of year accounting date does not line up with the tax year then then basis periods and overlap profits would need to be taken into account for the incoming partner
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
