A company traded from 06/12/04 to 16/09/06.
Accounts have been prepared for the periods ended 30/11/05 and 16/09/06. These showed adjusted losses, after capital allowances, of £615 and £13,053 respectively.
The company sold its business on 16/09/06, the proceeds being divided between stock, fixtures and fittings and goodwill, £15,000 being allocated to goodwill. The goodwill had no base cost.
Am I correct in believing that the total trading losses of £13,668 can be offset against the gross chargeable gain of £15,000, leaving a net chargeable gain of £1,332 taxable?
In addition, is the £1,332 then apportioned between FY2005 (£556) and FY2006 (£776), resulting in CT payable of £556 @ 0% and £776 @ 19%, even though the entire chargeable gain arose in FY2006?
Many thanks in anticipation of any guidance and assistance.
JAYE
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Replies (5)
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Thank you.
Mark
Many thanks for your assistance.
The business commenced on 26/09/01, initially as a sole trader prior to incorporation on 06/12/04.
Accordingly it appears that the loss of £615 in the period to 30/11/05 will be unrelieved, leaving £1,947 to be taxed, £812 for FY2005 @ 0% and £1,135 for FY2006 @ 19%.
Many thanks again.
Capital Allowances disclaimer?
You say the losses are after Capital Allowances. You are still within the time limits for amending the return for 30/11/05. You could disclaim some or all of the Capital Allowances for 30/11/05 which would effectively transfer the allowances from the first period into the second period.
If the company hasn't made any distributions in the period to 30/11/05 (which would seem unlikely given the losses), then may be able to disclaim sufficient Capital Allowances in the first period to create a profit. As long as there are no associated companies, then you could make upto £10,000 profit which would be taxed at 0%. In your case the period is slightly shorter than a year, and so you could make just under £10,000 taxable profit in the first period without generating a liability.
If you are able to disclaim at least £1,947 allowances in the first period, then you would be left with a £1,332 profit taxed at 0%, and the final period loss would increase to £15,000, covering the chargeable gain.
Thank you!
Michael
Thank you for pointing out the possible amendment to the CA claim, which regrettably I would probably have overlooked.
Thank goodness for this forum!
Capital allowances in final year
Didn't I read somewhere that you cannot claim capital allowances in the final trading period. Also wouldn't any allowances just be reflected in the gain or loss on the sale of plant and machinery?
???
I'm not sure I understand your point. Yes, the allowances are just reflected in the gain or loss on the sale of plant & machinery, which is exactly what we want! Disclaiming allowances in the first period increases the balancing allowance in the second period (or reduces the balancing charge). You therefore end up with a larger trading loss in the second period than you had originally, which can then be offset against the gain on the goodwill.