I am mixing myself up on something which I think must be quite simple. A sole trader incorporates his business. The only things purchased by the company are a small amount of fixed assets and the WIP balance.
Regarding the WIP balance, this will be subject to income tax for the sole trader's final period. But is it then subject to CGT as well, upon sale to the company (subject to incorporation relief)? That seems wrong but I can't get it straight in my mind.
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Is WIP a chargeable asset?
If compare to say Trade Debtors then this suggests no it is not.
It is however a right to income, but this in itself wouldn't necessarily mean it is subject to CGT. If this was a right to income attaching to say an earn out then yes it is taxable, however the right to income is just the mechanism for valuing the earn out consideration. It is not taxable on its own.
The right to income belongs to the s/t and he is taxed on such to income tax.
The WIP reflected in the company accounts is just an accounting entry to show capital introduced (wrong terminology, I know) by the director.