Im a UK sole trader and have been gifted machinery with a second hand market value of between £5k and £7k. As I don't have an invoice and didn't part with any money, how do I enter this transaction into my business accounts? And once that is done, what effect does this asset have on capital allowances and my annual Income tax? AIA cannot be claimed on this machine as it is 'gifted' but are there other capital allowances that could be correctly claimed?
And finally, does VAT get handled in the same way as any other asset purchase? bearing in mind I would have to self generate paperwork if a I have to value the equipment based on market value.
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Who has the property been gifted to you by? And what are the circumstances?
If we have more info, we may be able to help.
It's a zero.
It cost you nothing, so you can't claim CAs, or even enter it into your records. Until you sell it, (and make a profit on which you will pay tax) it doesn't exist.
It would initially be recorded at historic cost, therefore zero so no need to bring it into account just enter onto fixed asset register. I suppose you could revalue to market value and create a reserve but no cap allowances could be charged.
For accounts purposes...
... these should be recognised as fixed assets at cost (being the fair value of the consideration provided - which looks like nil - plus any costs that are directly attributable to bringing the asset into working condition for its intended use - the truck hire for collecting one of the items).
For VAT purposes, do nothing as you haven't incurred any input VAT, other than on the truck hire. That input VAT can be recovered assuming that you are VAT registered and fully taxable. If you ever sell the machinery, you will need to charge output VAT though.
For capital allowances purposes, assuming that they were acquired from unconnected people, the machinery can be added into the main pool (on which annual writing down allowances are given at 18% on a reducing balance basis) at their market value when they are brought into use.
You will have to make your best estimate of the market value, which HMRC might challenge. Penalties will be charged if you haven't taken reasonable care, so you will need some evidence (adverts selling similar items in trade magazines, for example) to support your estimate.
Alternatively, use a valuation that you are sure is below market value (nil if you're at all unsure), as there can't then be a penalty, because there will be no potential lost revenue to which to apply the percentage penalty when you have undervalued.