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AIA claim switching between sole trader and ltd

Claiming AIA for final year of sole trader accounts

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Hello, I read on the HMRC website that AIA is not availble in your final year of trading but it is unclear if this is the case when moving from sole trader to ltd company, I have around £4500 of equipment purchased in the last 6months (before I was planning on going ltd) which would be benificial to be included in the expenses of the Sole trader account as I have breached the higher tax rate threshold. Any advice would be much appreciated!

Thanks

Ian

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By williams lester accountants
10th Jan 2022 18:40

Advice would be to get an accountant. They can analyse whether moving to a limited company trading style is beneficial or not.

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By IANG1212
10th Jan 2022 19:08

Thanks for taking the time to respond.

The question was not in relation to whether I should be a limited company or not as I have already worked with an accountant and decided that this is the best route for my current circumstances. The question was whether or not I can still claim the AIA under my sole trader/SA, i.e. does HMRC regard my business to have ceased trading when I incorporate into a limited company therefore the rule that I cannot claim AIA in my final year of trading applies or does it consider the continuation of my business under the limited company therefore I am technically not in my final year of trading and can claim the AIA.

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By Leywood
10th Jan 2022 19:50

Why not ask the accountant you are working with then?

I take it you are just looking at HMRCs dumbed down information.There is legislation.

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By Leywood
10th Jan 2022 19:50

.

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By IANG1212
11th Jan 2022 11:39

After a run of bad experiences spanning several accountants I am no longer with any accountant for the time being.

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By Leywood
11th Jan 2022 11:54

Choose more wisely.

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By Hugo Fair
10th Jan 2022 19:55

A sole trader and a limited company are different legal entities - so unless you can find an accountant to show you a route to what you want to achieve, the default position is that the sole trader (according to you) will have ceased to trade.

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By Sandnickel
10th Jan 2022 19:44

Not my area of expertise but I'm not sure that you will get the tax relief that you seem to think you will.

I'd second the advice to speak to an accountant.

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Stepurhan
By stepurhan
11th Jan 2022 09:00

It will be your final year of trading as a sole trader. The asset will continue to exist after this cessation and will presumably not be worthless.

These two facts lead to the simple reason why AIA is not available in the final year of trading. Your accountant should be able to explain it to you if you cannot work it out for yourself.

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By IANG1212
11th Jan 2022 11:42

The assets will be introduced into the new company at market value, I did suspect it would not be possible to claim AIA but the HMRC website does not make a clear distinction between ceasing to trade and incorporating into a ltd company.

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By Leywood
11th Jan 2022 11:53

STOP looking at HMRC for tax advice!!!!!!!!!!!!!!

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By fawltybasil2575
11th Jan 2022 12:49

@ IANG1212.

Under normal circumstances, one should be able to achieve your purpose by using the strategy succinctly explained in the “Lessons and planning points” paragraph of the following guidance (I have no connection with those advisors):-

https://www.rossmartin.co.uk/sme-tax-news/1709-when-does-a-business-ceas...

The Capital Allowances legislation is here:-

https://www.legislation.gov.uk/ukpga/2001/2/section/6

Notwithstanding my above general points, one would need to know more information re the periods of account for your self-employment, and the timing of the intended transfer of the business to the limited company, to be able to offer definitive guidance to ensure that your exposure to higher rates of Income Tax is minimised.

Since you indicate that your taxable income has indeed resulted in a potential HRT liability, I consider that the services of an experienced accountant would be of benefit to you (albeit conscious of your unfortunate experiences re the standards of accountants encountered thus far).

May I add that, in response to your 11.42 post, the tax rules re the cessation of a self-employment trade apply entirely regardless of whether that cessation is followed by one's effectively continuing that trade via one's own limited company (albeit there are additional rules which can be of benefit in such circumstance).

Basil.

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By IANG1212
11th Jan 2022 15:26

Basil, Thanks so much for such a detailed response. This indeed give's me more evidence to backup what I suspected to be the case. It also confirms that the advice from my previous accountant was not very well informed which is why I am trying to make sure that decisions I make going forward come from more than one source of reference. After truing a couple of larger accountancy firms in the past two years I have reverted back to my original accountant, He is does not seem as proactive as the larger firms and his tax planning is not where I would like it to be but he gets the job done in terms of end of year accounts and if I can take a more active role with bookkeeping ect. then I feel I am in a better position to understand what's required for my business.

In terms of when my sole trader business ceased trading and I may be off track with this one. My ltd company started trading on the 1st Jan 2022 but my sole trader account is still receiving money from clients for work completed upto the 31st Dec so I planned on my final account being made up once all payments have been received. My sole trader financial year runs until the 31st March so if all payments were not received by this date I would effectively need to complete another set of accounts for the final transactions meaning that my AIA claim would not be within my final year of accounts.

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