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incorporation - plant and equipment

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Just thinking out loud here. 

say - a sole trader with only one asset in the general pool.  a van which cost £10k , tax WDV of Nil and MV of £2,500.  He incorporates and brings the van into the company.

I know that he if he "sells" to his company , then the sales price is what is used in both his and the company's tax comp.  they could however sign the s266 election and use the nil tax value in both comps and that would normally happen.  I just wonder what is to stop him inflating the amount he sells to the company for,  could he sell for say £30k , do the tax election and live off the £30k credit DLA for a while.  I'm thinking not , but then again, what's to stop this?  Is the amount he seels for capped at his cost?  The company will obviously need to write down the £30k purchase which is an issue.

 

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RLI
By lionofludesch
21st Nov 2016 07:19

Same as what happens if you overvalue your goodwill, I suppose.

You get into protracted correspondence with HMRC.

Although, on the figures you quote, not very protracted at all.

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By Mr_Flibble2
21st Nov 2016 09:29

Exactly as Lion states. If you want to head-off any discussion, use a justifiable value for the van which can almost certainly be found online on various valuation sites or comparing similar vehicles for sale, which is likely to be more than TWDV anyway.

One of the benefits of incorporating is being able to mix the S266 election with using purchase costs (that can be reasonably justified if queried, of course).

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By Portia Nina Levin
21st Nov 2016 10:29

The soletrader cannot bring in a disposal value of more than the original cost, and the anti-avoidance provisions prevent the company from claiming allowances on more than that amount. You also risk any excess over market value being taxed as earnings. Otherwise, the DLA side of things works.

HMRC simply not liking it though, should never be a reason not to do a thing though, in my opinion.

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RLI
By lionofludesch
21st Nov 2016 15:11

I have to say that I have been in protracted correspondence about goodwill from time to time and have always, so far, been able to substantiate my figures.

Three times the original cost for a van, though ? Not sure I'd be comfortable arguing that point.

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By blok
21st Nov 2016 16:08

thanks, I overegged the figures to make the point.

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Replying to blok:
RLI
By lionofludesch
21st Nov 2016 16:46

Happen you obscured it.

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