capital alowances in final period of trade

capital alowances in final period of trade

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My client has incorporated a limited company and obviously capital alowances are not available in the final period (1 April 2006 to 30 September 2006).....

However, is there anything to stop us preparing accounts to 31 August and claiming capital allowances and then preparing accounts for the month of September giving two sets of self employment pages?

Separate question: after the company started the client continued to use the sole trade bank account for a period (as well as using the company account). Are the bank interest and charges debited to the sole trade bank account tax allowable? If so, for the company or for the individual.

Thanks in advance for any help.
Rob

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By User deleted
16th Jun 2006 14:36

Michael...
Thanks. Yes, I was aware that this is the case. I did this to great affect on one particular client and then thoroughly enjoyed putting the inspector in his place when there was an enquiry.

Unfortunately in this case I had to consider the value of the assets and liabilities going into the company and I didn't have the flexibility to introduce the assets at a low value into the company.

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By User deleted
15th Jun 2006 10:51

Capital Allowances
If the company were to make a nominal payment to the sole trader for the assets which qualify for Capital Allowances, then that value is used in the final computation instead of market value and the desired balancing allowance is achieved.

This applies even where the two parties are connected (as in this case).

See section 61(2) Capital Allowances Act 2001, item 1.

Hope this helps.

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By Paul Soper
14th Jun 2006 15:04

Oh yes they are
Capital allowances are available - they just take the form of a balancing adjustment - WDV + acquisitions - MV at date of transfer to the company. Only if you elect to transfer at WDV will there be no CAs as the transfer is made at WDV at the beginning of the final period.

As far as change of accounting date is concerned this could be done (as long as you fulfill the conditions laid down and you will then have a lower WDV to transfer by election. But is it worth the bother?

Your client needs to charge the company with a sum corresponding to the bank interest and charges on the assumption that this was incurred on the company's behalf - but you'd have to be pretty clear that this was genuine.

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By User deleted
14th Jun 2006 18:49

Paul..
..thanks for your comments.

However, presumably the market value is open to challenge whereas the tax written down value is a question of fact. So, if I estimate the market value to be at a level where an balancing allowance is given in the final period, couldn't HMRC challenge this in a later enquiry and argue that the market value is higher?

Normally, it would probaly wouldn't be worth the bother, althogh there is a 40% saving for the individual and an extra charge at 19% for the company. However, in this case management accounts are/were being done monthly so its not as much work as my original query may have implied.

How would the charges from the individual to the company be treated. Would this be added to the self employment income? The bank were slow to transfer the standing orders that the company pays over to the limited company bank account, so the business continued to pay cheques from customers into the sole trader account to cover this.

Thanks for your help.

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