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AIA, Sole trader -Yr of cessation - would this work

Sole trader incorporated on 1 November 2011.

Plant and machinery bought in May 2011.

Normally accounts are to 31 March.

She would like to claim the AIA as a sole trader.  Could she have a shorter accounting period to, say 31 October, so she could claim the AIA, as a sole trader.

Then the final period would be 1 Nov 2011 - 31 March 2012.

Or would that not work, because there are two accounting dates between 6 April 2011 - 5 April 2012, so the basis period would remain as the 12 months to 31 March 2012??

(thanks for any help - have been going round in circles with this, so now can't see the obvious answer)

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16th May 2012 12:44

Easiset option

would surely have been to have the company take over the trader after 6 April 2012.  Then you have a normal accounting period to 31/03/12 and another of a few days.  Separate accounts would/might be needed.  However, you can't rewrite history if the changeover was on 1 April.

 

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By Viv100
16th May 2012 17:30

Thanks for your reply :-)

The changeover date was 1 Nov 2011 (client wanted to be a ltd co for a particular deal, so couldn't wait until later, and no one wants to rewrite history and change that date either)

(There are a small number of residual transactions up to about Feb/March mainly where the supplier had made the invoices out to the sole-trader rather than the ltd co.)

 

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16th May 2012 13:21

On Dear

In the final basis period the AIA isn't given because there will be an overall balancing adjustment, either charge or allowance.  As connected persons market value would have to be used.  They could elect to transfer at WDV but that would mean no allowances at all for the final basis period and no AIA to the company as it is acquiring from a connected person.

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16th May 2012 14:19

paul soper

Paulsoper wrote:

In the final basis period the AIA isn't given because there will be an overall balancing adjustment, either charge or allowance.  As connected persons market value would have to be used.  They could elect to transfer at WDV but that would mean no allowances at all for the final basis period and no AIA to the company as it is acquiring from a connected person.

 

yes paul technically you are correct: the value of any assets eligible for capital allowances has to be considered on an "arms length basis" as the incorporation is a connected party transaction.

from the size of it though short of a nice expensive newly bought car used by the individual for the business, if the item was eligible for AIAs and not just the 10% wda,( unless the nice expensive car was also a low emission car,) what else would be eigible tfor capital allowances that would also have a readily ascertainable market value?

 

i would imagine it depends on the size and "market" of this business run by this lady. Valuable plant may include IT expuipment(if newly acquired(since may 2011. thats about all there would be that could be subject to a market value excercise.

otherwise the AIA would just be apportioned for the length of the closing accounting period(if less  than 12 months) since companies can also claim AIAs

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By Viv100
16th May 2012 14:24

post 6 April...
Thank you PaulSoper for confirming that it is the basis period, so two accounting dates in the same period would clearly not work.
I know that I have been overthinking this.
I was just looking at this thread (below),and wondered if there was any mileage in splitting the year so that the final period from 1 Nov 2011 ends on 6 April 2012...
http://www.accountingweb.co.uk/anyanswers/claiming-aia-year-cessation-tr...

Thanks again, everyone.

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By BKD
16th May 2012 14:30

Why, oh why ....

... do people continue to think that a sale between connected persons must always be at market value for capital allowance purposes?

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16th May 2012 14:58

market value?
Could you explain your comment a little further perhaps?

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By BKD
16th May 2012 15:47

@Paul

Not sure if your question is directed at me, but I was referring to the (very) common misunderstanding that arises when capital allowance assets are transferred between connected parties. It does not automatically fall that market value must be used. More often than not, actual consideration should be used (subject to a TWDV election).

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16th May 2012 17:11

A dissenting view (I think!):

General exclusion 1 to the claiming of AIA, as in s.38B CAA 2001 prohibits the claiming of an AIA in a "chargeable period" in which a qualifying activity is discontinued.

A "chargeable period" is defined in s.6(1)(a) and s.6(2)(a) by reference to an accounting period, not a basis period.

In conclusion, the OP suggestion does work, and we have done this any number of times.  Our software allows it (dangerous assumption that it means anything, but at least helpful), and no Inspector has yet challenged it (another dangerous assumption that that means anything).

You do then have to transfer the assets to the continuing entity subject to an election under s.266 CAA 2001 that the assets transfer at tax written down value.

My only objection to the OP suggestion is that the final period of account would not be 01 November to 31 March, but would be a single day 01 November to 01 November (date of cessation).  In fact, to avoid a Theresa May incident, I might for safety make up the earlier period to a BS date slightly earlier than 31 Oct.

Don't forget that there is a proportionate reduction in the maximum AIA limit for a short period, but presumably you are within that (or it is still beneficial).

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By Viv100
16th May 2012 19:00

CAA 2001

Thank you Nogammonsinanun...

If that's the case, that would be most beneficial for my client.  Perhaps my late night pondering has not been in vain.

Yes, the pro-rated AIA limit would still be sufficient for the level of expenditure she's made, so I shall go and do a bit of reading of CAA 2001.  Thank you for the references/section numbers.

I'll consider doing a slightly earlier date than 31 Oct - thanks for the suggestion.

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21st May 2012 11:36

A thought

Could she not run the two businesses side by side until April 2012 and then merge?

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By blok
21st May 2012 11:41

.

bkd is right as usual.  I normally look at these sutuations with three options in mind.

 

option 1. the transferor could sell to transferee at an agreed value.  That would put an end to any question about basis periods.  The agreed value doesn't have to be market value (£1 is potentially OK) but it does need to be properly documented by invoice and payment.

option 2.  both can elect to transfer at tax wdv of the previous period.  I have done this many times and can work out fine but it depends on the figures.

option 3. if option 1 or to 2 is not selected you need to transfer at MV with all the various balancing adjustments.

 

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