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Change in accounting date & capital allowances

Changing accounting date & capital allowances & cessation of trade

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I have a sole trader client with a 28 Feb year end. 2021 accounts and tax return have been completed and submitted. They have recently decided they would like to move the trade into a limited company, however during the current year they've spent £20k on capital equipment. If I make up sole trader accounts to today, in readiness for cessation then client couldn't claim AIA or WDA's but could transfer the cost to the limited and the limited can then claim WDA's going forward.

Is it possible to shorten the current year end date to say 30.9.21 (and do a short period accounts 1.3.21 to 30.9.21) in order to claim AIA in that period and then prepare a separate set of cessation accounts for the period from 1.10.21 to say 31.12.2021 in which very little has been spent on capital and the business ceases at 31.12.2021.

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RLI
By lionofludesch
07th Nov 2021 14:49

I vote no.

I interpret s202 ITTOIA as deeming the final period to be one big basis period from 1 March 2021 (the day after your last accounting date) to cessation and it won't matter how many sets of accounts you produce in that period.

https://www.legislation.gov.uk/ukpga/2005/5/section/202

If you've got expenditure in March, though, it's quite possible to prepare accounts to 31 March 2021 and amend last year's return.

Happy to debate a contrary view on this.

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By Tax Dragon
07th Nov 2021 15:15

I'm impressed and grateful, lion. Quoting legislation in the first reply. Let's have more replies like this, everyone!

So let's get stuck in. Is the deeming rule in ITTOIA relevant? It may well be, I'm not arguing with you. I'm just wondering what brings it into play here. For CAs, we must surely start with CAA 2001. We're in the realm of general exclusion 1 in s38B. Chargeable period is defined in s6. No mention at this point of ITTOIA, or anything drawn from ITTOIA.

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RLI
By lionofludesch
08th Nov 2021 07:43

Tax Dragon wrote:

I'm impressed and grateful, lion. Quoting legislation in the first reply. Let's have more replies like this, everyone!

So let's get stuck in. Is the deeming rule in ITTOIA relevant? It may well be, I'm not arguing with you. I'm just wondering what brings it into play here. For CAs, we must surely start with CAA 2001. We're in the realm of general exclusion 1 in s38B. Chargeable period is defined in s6. No mention at this point of ITTOIA, or anything drawn from ITTOIA.

If you're right, that's the solution to all those failed AIA claims. Simply prepare accounts to the day before cessation with a second set for the final day.

Can it be so easy?

How have we overlooked it?

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Replying to lionofludesch:
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By Tax Dragon
08th Nov 2021 08:35

If I'm right?

What do you think I said? (I know you've quoted me in full, but that doesn't mean you read what I wrote.)

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RLI
By lionofludesch
08th Nov 2021 10:35

Were you not referring to the difference in wording between "basis period" and "period of account"?

It's a very valid argument, which I acknowledge.

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By Tax Dragon
08th Nov 2021 10:58

I wasn't arguing. (I even said as much.)

I was actually looking forward to a thread in which legislation would be discussed in a non-confrontational way and the answer (which must come from that legislation) derived. Maybe I was asking too much of the largest independent online community for accounting and finance professionals in the UK. Or might it yet happen?

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By Paul Crowley
07th Nov 2021 21:37

Always wary of clever ideas
This sounds like your clever idea, not the client's so the risk is all yours
He may have spent £20K on new stuff, but what is the market value of that second hand stuff, who would buy it?
Client's problem of buying new stuff and then deciding to cease trading
If only he told you his plans with enough time to properly plan
For example delay the transfer to the company

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