Balancing charge

Sale of fixed asset above WDV, trading losses b/f

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Company has trading losses brought forward of say £25k.

Capital allowances on only fixed asset (primary revenue generating website IP related to the trade, therefore plant & machinery) of £20k claimed under AIAs. WDV of nil.

Company wants to sell website/IP to a non-UK company (owned by a relative of sole shareholder) for say £19k and then make UK company dormant. 

There would then be a balancing charge of £19k in the current year.

We're seeking clarification if the trading losses brought forward can be set off against the balancing charge in the current year?

Are there any other obvious issues with the sale of the IP or related party that should be considered?

thanks in advance

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By jlsTax
24th Aug 2016 17:05

On the assumption that the transaction is happening at market value and there is no avoidance motives, the normal position would be that the balancing allowance would be part of the trade profits calculation, the resulting Profits Chargeable being offset by the b/f loss.

Issues to consider are whether the IP is a new or old intangible asset - if old (pre 2002), it would be a capital gains rules transaction, but then you would not have claimed AIA back then.

Related party issues are really within the market value point.

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By Igor Nankun
24th Aug 2016 18:17

Assuming that the "website" is tantamount to software, and the only other IP is a (quite possibly all but worthless) domain name, then this can (and would most appropriately) be dealt with under the capital allowances regime, rather than the intangibles regime, and the chargeable assets regime would not be in point.

In that case, market value applies by virtue of CAA 2001, s. 61(2), event 2.

If there is IP other than software (or something tantamount to software), then this will fall within the intangibles or chargeable gains regime, as appropriate to when it was acquired, and market value will apply by virtue of CTA 2009, s. 845 or TCGA 1992, s. 18, as appropriate.

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