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Sole trader final year

I purchased approx £3k worth of equipment back in May 2011, which I have used in my part time business (sole trader). I'm now looking to become limited and I've recently been told that I can't claim AIA or any kind of tax relief for that equipment, as I will be ceasing my sole trader-ship.

This will make a large dent in my tax liability - is there anything that I can do to mitigate the burden?

Thanks in advance.

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15th May 2012 17:30

Why dent?
I would have thought all allowances have already been claimed which is why they cannot be claimed again on transferred Assets.

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By VRunner
15th May 2012 20:35

Hi

Nope, the equipment has been purchased & paid for in May 2011, which wouldn't be eligible for any claim until the 2011/12 SA tax return - hence I've just found out. It's not previously been claimed.

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15th May 2012 21:19

When's the Sole Trader yr end?

Are you still trading as a sole trader? If you are, your year end must have passed by now (Asset purchased in May 2011).  So consider the tax relief on £3000.00 against the cost of having another set of cessation accounts prepared after this year end.

 

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15th May 2012 21:15

Who has told you that?
No, you can't claim AIA in your final period, but you can bring in your expenditure and your balancing adjustment will take that into account. (Unless you make an election to transfer at a value which does not give rise to an adjustment.)
At what price are you selling your P&M to the new company?

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By DMGbus
15th May 2012 22:44

SOLUTION: Date of ceasing sole trader & drawing up accounts

Here's a way to get the AIA in the sole trader...

Draw up sole trader accounts upto 5 April 2012.

Then, assuming that Ltd Co to start / takeover after 5 April 2012...

AIA claim in full in accounts to 5 April 2012 by sole trader.

When drawing up sole trader cessation accounts (2012/13 tax return) you then have a choice...

EITHER

(a) Sell at market value to Ltd Co - likely to create a balancing charge (profit) for sole trader, and the Ltd Co can only claim writing down allowance as acquired from a connected party

OR

(b) For tax purposes transfer at tax written down value which means no balancing charge for sole trader

Option (b) can only apply to assets NOT having private use (so not normally available for cars and those vans with private use).

 

In deciding which of the two options (a) or (b) suits you best there are three other considerations:

Class 4 NIC (use Annual exemption) (quite relevant if ceasing early in a new tax year)Tax Credits (AIA can beneficially distort income to enhance entitlement to Tax Credits)Extra costs if two sets of accounts drawn up rather than one for the soler trader (as in crossing 5th April 2012)

The levels of profit and other income will have a bearing on whether option (a) or option (b) is best.

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