Capital Allowances

Capital Allowances

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Client is to cease to trade and transfer business to Ltd company. Normal year end is June but a large capital purchase has been made and doesn't want to lose AIA. 40% tax payer. Considering shotened accounting period to March 2011 and then ceasing business in early 2011/12. If this is done is this calculation correct? Is it likely to be challenged by HMRC? Thanks in advance.

Shortened accounting period:                                  

Pool

b/f           60000

additions 70000

total       135000

aia           70000 ( max AIA 100k x 9/12= 75000)

wda           9000 (20%x9/12)

c/f            56000

Period of cessation:

Pool

b/f                     56000

transfer at twdv 56000

Replies (5)

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By Dogracer
03rd Feb 2011 12:16

Andrew Scott
Have you changed the accounting date before? Provided you have not I cannot see anything wrong with the proposed planning. Does the change also release any overlap profit?

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By Cirius di Lemma
03rd Feb 2011 12:32

Red rags and bulls

I can see a problem with your plan.  For a change in accounting date to be effective, not only must you not have changed it in the previous 5 years, but the change must also have been made for commercial reasons.

Shortening to 31 March, claiming AIA, and then ceasing shortly after might be inflammatory.

I think you should read Ss. 217-218 ITTOIA 2005 for yourself and imagine Dirty Harry asking if "you feel lucky".

http://www.legislation.gov.uk/ukpga/2005/5/section/217

http://www.legislation.gov.uk/ukpga/2005/5/section/218

The alternative is to wait until July to incorporate.  Personally, that's the option I'd go for.

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By blok
03rd Feb 2011 12:41

.

Cirius, if you read the legislation it says that condition A or B should be met.  It does not also have to be made for commercial purposes.

I would have no hesitation in doing what the OP suggests.

Why do you suggest that waiting till July make a difference?

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By Cirius di Lemma
03rd Feb 2011 12:48

lol, agreed!

I'd just been looking at the section in a different context and thought "ooh, I never realised that!".  Thanks for clearing up my misread.  Plan A sounds fine lol.

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By dunhamsjd
03rd Feb 2011 13:40

Consider AIA anti avoidance provisions

s218ACAA2001 prohibits the AIA being made if the arrangements could be regarded as being made if the "main purpose, or one of their main purposes, is to enable a person to obtain an annual investment allowance to which the person would not otherwise be entitled"

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