A client has had tools stolen from his van, many of these items have been replaced this tax year 2018-19. A lot of the tools that were stolen were claimed in previous years as 100% AIA.
Sole trader/not VAT registered/income and expenditure account.
An insurance claim has been put in for but not paid out yet.
After some advise on how to treat the stolen goods/Insurance claim etc.
My tradespeople clients tend to want to distinguish between tools which are of a materials/consumables nature and a revenue cost and the bigger tools which are more of a capital nature. A single new screwdriver does not sound to me like something which should be capitalised. Is there a set of rules about this about at which point one considers a tool a capital item?
Has the Insurance Company agreed a sum to pay out?
If your client had no insurance then my understanding is that the assets stolen would be accounted for as a disposal at market value, which I would expect to be a similar amount to what the insurance would pay out.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
My tradespeople clients tend to want to distinguish between tools which are of a materials/consumables nature and a revenue cost and the bigger tools which are more of a capital nature. A single new screwdriver does not sound to me like something which should be capitalised. Is there a set of rules about this about at which point one considers a tool a capital item?
Hi John
There are rules about what should and shouldnt be capitalised. IAS16 cover such.
I would argue that a screwdriver could (should?) be capitalised as its expected use is over 12 months.
Now if it was a cordless drill I would say not to perhaps as these tend to burn out fairly quickly. Although these days with some drills you can just buy replacement power packs, so each has to be considered on its merits.
Most businesses though do tend to set a limit, below which they dont bother eg £200/£500. Depends on the size of the entity and what assets they have. Materiality comes into play here.
Thing with this question is that the OP stated the tools had been subject to an AIA claim, so the inference is that all were capitalised. Whether that was indeed correct, we can only assume, given 'Silly Digits' (I hate calling her that but have asked for her first name a few times) has been in the business a long time and as we have no further info.
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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 would argue that a screwdriver could (should?) be capitalised as its expected use is over 12 months.
Now if it was a cordless drill I would say not to perhaps as these tend to burn out fairly quickly. Although these days with some drills you can just buy replacement power packs, so each has to be considered on its merits.
Most businesses though do tend to set a limit, below which they dont bother eg £200/£500. Depends on the size of the entity and what assets they have. Materiality comes into play here.
What I do from a systems perspective is to have "bigtools" and "littletools" as transaction codes. One of which is capitalised and the other not. To an extent I am relying on materiality rather than expected use in that.
I have this thing where i like to get boxes 6-9 right as well as 1-5. There is quite a lot of misunderstanding as to what should be in 6 and 7 particularly 7. I then carry that approach forward to Self Assessment.
Thank you for your replies, no insurance money was paid out in the year 2018-19. I will need to check if it has been paid out since I have had the books.
The list to the insurance company includes some tools that have been put down as a expense in previous years and larger ones that 100% AIA were claimed.
I presume the replacement tools that have been purchased would just go down as expenses (if small) or for the larger one capital allowances. Do I write off the tools that have been stolen in this tax year?
If your client had no insurance then my understanding is that the assets stolen would be accounted for as a disposal at market value,
After posting this it did make me think again about if this is indeed correct, I had always thought the above and interpreted the HMRC guidance to mean the same but on reflection I did think this to be unfair so looked further into the legislation and it seems that under CA2001 s.61 then the proceeds for an item that is stolen should actually be nil.
As we all know Legislation trumps the HMRC guidance every time but just wondered if anyone else has thoughts on this and how you would interpret this particular situation
Hi Patricia
The above does not relate to you I know as your client was insured but just wanted to ask for others thoughts as well as yours
A disposal has still taken place and so you would still need to recognise this by removing the assets from the Balance Sheet, I would also account for the replacement tools as you would normally for the client by either expensing them or claiming CA.
Once the Insurance has paid out you would need to break it down and credit the relevant expense account used for the original purchase of the tools for the amount received and the other amount received will be the sale proceeds for the CA disposal.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Just going back to this query, I now have a bit more information. The tax return I am completing is for 2018/19. But the insurance money came through after the end of the tax year, no breakdown just a lump sum. Can I put this in as a balancing charge in 2018/19? The insurance money does not split between capital expenditure items and small tools. I have a list of items that I can just about match to the AIA 100% claimed items, but they would be the price when bought.
If your client had no insurance then my understanding is that the assets stolen would be accounted for as a disposal at market value,
After posting this it did make me think again about if this is indeed correct, I had always thought the above and interpreted the HMRC guidance to mean the same but on reflection I did think this to be unfair so looked further into the legislation and it seems that under CA2001 s.61 then the proceeds for an item that is stolen should actually be nil.
As we all know Legislation trumps the HMRC guidance every time but just wondered if anyone else has thoughts on this and how you would interpret this particular situation
Hi Doug
Sorry only just noticed this (Ive got a few unread ones to catch up from the last couple of weeks).
Had a quick glance. Think I agree with you, although reading such at the end of the day is probably not such a good idea! Think if I had a client in this scenario I would be taking technical advice to be on the safe side. But as you say, not in point here.
__________________
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
Just going back to this query, I now have a bit more information. The tax return I am completing is for 2018/19. But the insurance money came through after the end of the tax year, no breakdown just a lump sum. Can I put this in as a balancing charge in 2018/19? The insurance money does not split between capital expenditure items and small tools. I have a list of items that I can just about match to the AIA 100% claimed items, but they would be the price when bought.
Any advise would be appreciated.
Patrica
Hi Patricia
Good to know your name at last. This one sounds a right royal pain!
I would try a couple of things - get access to the full claim form, as hopefully there will be a breakdown of the specific amounts he has claimed for the tools, at the very least for the ones you have as obvious assets and then the rest perhaps lumped together. Then perhaps see if the insurance company documentation confirms they have paid out in full versus his claim.
Does he retain ANY of the tools that you have down as assets/claimed capital allowances for? If yes, then you should get a breakdown that you can then identify across to his asset register and dismiss those.
Hopefully with the above you can then apportion the proceeds fairly easily. Failing that I think you would need to some kind of apportionment (eg original cost price across the whole lot, percentage for each item v insurance claim based on same percentage, if that makes sense). Whichever method you use you need to be able to fully justify in the event of an HMRC inspection. (If you can show as a result of this mess up that in future each asset is being assigned a reference number that is logged on both the tools and the asset register that might help!)
You need to 'lose' the assets in his 2018/19 tax year. (Usual, disposal process for your duble entry, clearing out the cost/accumulated depreciation). Debit the amount of the insurance claim to your 'accrued income' account in your SFP (old Balance Sheet) as a current asset, much as you would if it was normal accrued income.
When the insurance money is paid through the bank, you can debit bank as normal, credit the accrued income account.
Yes your cap allowances balancing charge would need to be 2018/19 tax year I believe.
Interested to know the thoughts of others!
__________________
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
Good to know your name at last. This one sounds a right royal pain!
That's not very nice! I like the name Patricia it was my Mums name and it is my Daughters middle name
Agree with Joanne if you can get the list of the stolen items that were claimed for you should be able to apportion using a percentage ratio to what sum was paid out you can then allocate these amounts to either the balancing charge for the CA and to credit the expense account used to purchase the tools originally, and I would agree that the year of the disposal would be when the assets were stolen.
As long as you can prove that you have tried to allocate the insurance payment fairly then I can not see there being a problem.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
