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Client ceased trading December 2012

My sole trader client's accounts year end was usually 5th April each year. He has always been behind with letting me have his records and often picks up a penalty for a late Tax Return. He also has tax arrears that he pays off by instalments.

Client has not yet let me have his records to 5th April 2012 despite my repeated requests.

Client telephoned me today to say he will let me have his records to 5th April 2012 soon (I will believe that when I see them).

As a by the way, client mentioned that his business ceased trading in December 2012 but that it will take him some while to let me have his records from 6th April 2012 to cessation of trading as he is way behind with his records. In his usual way  the client will just accept the late Tax Return penalties and keep paying his tax and penalties arrears by instalments. Is there any chance HMRC will not penalise him for a late 2012 Tax Return on the basis that his 2012/13 tax liability cannot be determined until his final accounts are available and would normally be included in his 2013 Tax Return ?.

On another issue, clients capital allowance pool was written off several years ago using the small pools writing down allowance and I doubt that the equipment now has any value so no balancing charge would result, but in 2011 client purchased a motor van, annual investment allowance was claimed on this van such that it has  a nil capital allowances balance, however client is keeping that van so I guess that a market value should apply at 31st December 2012 and a balancing charge then arises - Do balancing charges result when AIA has previously claimed ?.

Old timer needing his hand held on these technical issues - thanks for any help.

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Eh?

How do the accounts from 6 April to cessation in December 2012, which will be included in the 2012/13 tax return and result in the 2012/13 tax payable, affect the 2011/12 return in any way?  There is no chance of HMRC foregoing any late filing penalty for the 2011/12 tax return.

Yes - you need to include a reasonable estimate of market value (even if for a van in poor condition!) and pay tax on the balancing charge in 2012/13.

Thanks (1)

Client ceased trading December 2012

Thank Euan

Sorry I did not phrase my original question very well - My  thinking was that as the 2013 payment on account would be determined by the 2012 results that this might well be more than the tax that was finally due as a result of the cessation of business, forgetting that I could of course ask for a reduction in the payment on account for 2013. In this case it maybe the cessation of business in December 2012 was due to loss making, which is what I suspect, and carrying back the loss may at least help the client with reducing his tax arrears.

I do wonder how the revenue pick up when a capital allowances pool balance is zero because of an AIA claim and, say a few years down the road, whatever was in that pool is sold and would give rise to a balancing charge, particularly if say a client had changed his tax adviser, and did not tell tell the new adviser  (or even realize), that AIA had once been claimed on those assets.

 

 

 

 

 

 

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How do you manage ...

... to have so much white space after your text?

You can only estimate the 2012/13 tax liability and apply to reduce the POAs accordingly.  Explain to the client that if your estimate is too low, he will be charged interest at 3% on the shortfall of the POAs, but that seems unlikely to worry such a serial offender!

As to pools of CAs, I am just dealing with the sale of sole trader business for a client who came to me a couple of years ago after his previous accountant died, so no brought forward information.  However, I am aware that my predecessor did claim AIA in the year before, so I have assumed that the pool b/f was nil and that the amount attributed to equipment in the sale agreement was therefore taxable as a balancing charge.  If I had attributed all the sale price to goodwill, he would have paid CGT at only 10% instead of income tax at 40%.  I guess it is down to the professional standards of accountants, rather than anything HMRC can check.  I suppose that they could include a question on cessations about the value of plant on which CAs had been claimed in much the same way that they ask about VAT claimed on assets still held at de-registration.

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