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Purchase/Sale of business

Capital Allowances

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With regard to the sale of a business (asset sale) and in particular capital allowances. Can you confirm my understanding is correct in respect of the below scenario please? 

My client is the purchaser in this instance, the assets consist of goodwill and P & M. They have initially agreed an overall value for the business which of course incorporates both. 

P & M is machines (company is an engineering co), surely the price allocated to P & M is disposal proceeds for vendor (which may create BA/BC) and subject to AIA (assuming limit not exceeded) for the buyer as it is not fixed P & M and not subject to any possible elections? 

The vendor's accountant disagrees!

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By David Ex
08th Nov 2021 09:40

Jigs wrote:

The vendor's accountant disagrees!

About what? Does the vendor’s treatment affect your client absent any joint election, etc?

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By Paul Crowley
08th Nov 2021 09:34

The sale documentation really should identify the values of what is being sold.
But selling agent usually interested only in the combined total.
Were there solicitors involved?

Is vendor treating the total as goodwill?

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By Jigs
08th Nov 2021 10:09

No one has mentioned the split between goodwill/P & M and they all seem disinterested, I am trying to stress that it has CA implications so has to be dealt with.
I think the accountant thinks that value for P & M would be nil on basis that AIA has been claimed, but I am saying it should be their MV which would create a BS as I didnt think an election was possible on P & M which isn't fixed?

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By Tax Dragon
08th Nov 2021 10:14

I believe it is called "negotiating".

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Replying to Tax Dragon:
RLI
By lionofludesch
08th Nov 2021 10:44

Indeed it is.

Are we negotating before or after the deal?

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Replying to lionofludesch:
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By Tax Dragon
08th Nov 2021 11:15

Good question.

@Jigs?

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Replying to Tax Dragon:
RLI
By lionofludesch
08th Nov 2021 11:57

I'm guessing before, from the tenor of the OP.

I would be mentioning to the vendor that, if it were me buying an asset complete with latent tax relief for £1000, I'd only be prepared to pay £800 for the same asset without tax relief.

So the purchase price would need adjusting downwards.

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Replying to lionofludesch:
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By Tax Dragon
08th Nov 2021 12:00

I believe that'd be called "negotiating".

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Replying to Tax Dragon:
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By lionofludesch
08th Nov 2021 12:12

Just a suggestion.

It's not mandatory.

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By paul.benny
08th Nov 2021 11:02

Were any other assets acquired? eg stock, debtors.
Should any part of the consideration be allocated to them?

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By Jigs
08th Nov 2021 12:30

Yes, before the deal. Just wanted to check I was correct in my thinking around the tax treatment.

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By The Dullard
08th Nov 2021 13:10

CAA 2001, s 265 isn't negotiable IMO.

OP: Why not refer the vendor's accountant to some legislationy stuff. It's irrefutable.

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