Can you claim a tax deduction for the same asset twice?

Can you claim a tax deduction for the same...

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I have a client (limited company) who purchased an item of plant and machinery under a finance lease 7 years ago. The asset was written off in the accounts over the length of the lease and the depreciation claimed against corporation tax. At the end of the lease, the asset was purcahsed for the residual value by the Directors.

The Directors now (for genuine business reasons) wish to transfer the asset back into the company. It has been valued and its market value is considerably higher than the residual value they paid at the end of the lease. They will therefore pay capital gains tax on the difference, and the company will acquire the asset at its new market value.

My question is whether the coampny can claim capital allowance on the asset at the new market value. It somehow seems wrong to claim twice on the same asset, but the Directors will be paying capital gains tax on the difference. Can anyone help?

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By thehaggis
14th Jan 2011 20:57

Market Value cuts both ways.

 The disposal to the director should have been at market value. That will have brought in a large balancing charge that would have negated much of the CAs already given.

The disposal at undervalue would also create an employment income charge on the director.  His acquisition cost will be deemed to be the MV, therefore there will be no CGT to pay.

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By sallyhayes
14th Jan 2011 22:22

Arms length

The disposal at the end of the lease was from the 3rd party leasing company not from the company, at its residual value. This was an arms length transaction.

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By Ken Howard
15th Jan 2011 09:10

Company should have bought it

If the company was the name on the lease, then the company should have paid the leasing company for it, not the directors personally.  In effect, the directors have obtained a "benefit" by buying the asset at an undervalue which I think should have been put on their P11d.  If the asset is now at market value at a much higher price, it must have been bought by the directors at undervalue, hence a taxable benefit they obtained by virtue of their directorship. 

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By sallyhayes
15th Jan 2011 16:13

Thank you - these are really useful comments. I was not involved in the orginal purchase so I can not comment on the exact purchase scenario but I will be discussing with my client.

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By Cant Add Up
17th Jan 2011 07:49

..

If the director bought it as individuals on the open market [say like a car at a leasing company disposal auction], then the price they paid WAS the MV of the item.

If the MV is now different [and can be shown to be so] then I fail to see how it's not allowed.

 

ps...not an accountant!!!!

 

 

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By nogammonsinanundoubledgame
17th Jan 2011 08:02

It seems to me that ...

... the true current open market value of the asset can only be determined by taking into account all of the evidence in the round.  You cannot selectively choose the evidence that happens to suit your cause, from a wealth of evidence that is in your possession.

Were it to come to the attention of the Inspector that you had two sources of valuation: one being provided by a valuer and the other being a historical transaction conducted on the open market in a bargain at arm's length, then the Inspector might argue that the latter evidence is more compelling.  I suppose that it is an argument that he might not win, but I personally would not like to have to argue it.

With kind regards

Clint Westwood

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