Hi all
We have a client who is wanting to restructure their business somewhat.
The business is the manufacturing and retail of plastic toys which are produced using injection moulds.
Currently, they have a limited company which does both the manufacturing and the selling.
What the would like to do is to move the manufacturing and trade sales out of the limited company and into a partnership whilst the limited co conducts the retail sales.
I am about 90% certain on the capital allowances treatment here but I want to make certain on this.
The limited company can sell the moulds to the partnership, but as this is a connected party transaction, at market rate and the partnership can claim capital allowances on them, but not AIA as the assets are not new.
Thanks for your time guys
Phelan
Replies (5)
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Another Yes
electing for transfer of plant at TAX WDV seems common
but don't understand why they want to make it so complicated
do they need physical signatures anymore ?
I've always made such elections separately in writing - especially as they are joint elections and need signing by both parties.
Mind, the time I did spend in a smaller practice taught me that almost no one had heard of elections (and other tax niceties) before I joined. They never did stock or P&M elections on incorporation for example - and from what I gather, they're not the only ones who don't do such things. Now I've left, they probably don't get done any more.
I put the elections in the additional information boxes (obviously make sure clients / both parties, sign the paper copy which I hold ),
but this raises an important point with regard to elections generally .. do the paper signed elections also need to be be posted by snail mail (yawn) as well ?
hmrc accepts the whole tax return online .. which includes the additional information boxes (within which I type the election and I make sure I also type " signed by ...date ...") , so logic tells me you dont need to send paper elections with real signatures anymore .. but as we know logic is not hmrc's strong point
Careful!
The election under CAA 2001, s. 266 applies to override the general rule where a person succeeds to a qualifying activity which "was until that time" carried on by a predecessor that is a connected person.
HMRC interpret that to mean that the successor must succeed to the whole qualifying activity and the predecessor must cease to carry it on (see CA29030 and CA29031. Taking ss. 266-268 together, that certainly appears to be the contemplation of the legislation.
What is happening in the OP's situation is that the partnership is only acquiring a part of a qualifying activity, and (by virtue of Gordon & Blair v CIR 40TC358) it's an entirely different qualifying activity to the one that the company carried on, so it can't really be said to have succeeded to the qualifying activity.
That means that the market value rule in s. 265 doesn't apply either though, but if there's no consideration the assets pass at market value by virtue of s. 61, item 7 and s. 14). This amount will be limited to the company's original cost though, by virtue of s. 62, s. 213(3) and s. 218.
If there is consideration you can make it whatever figure you like, but it will again be limited to the lower of market value and the company's original expenditure. So you get greater potential flexibility than the s. 267 election, without needing to make the election. Great news if you're a smaller practice! :)
As has been noted, AIA is precluded by s. 217 (as are FYAs).
the important point though, is that,to the extent that the assets are transferred below market value, that is a distribution of the company's assets, taxable on the shareholders as a dividend.