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Sole trader to limited company

NBV of assets

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Hi everyone.

On the transfer of a business from a sole trader to a limited company, given the following figures, could someone confirm this is an acceptable way to do things:

 

Sole trader ceases 31 March

Fixed asset reg NBV of assets £5,000

Cap Allow WDV of assets £3,000

Limited co commenced trading 1st April

to introduce assets into limited co, debit FA £5,000, credit DLA £5,000 re the FA NBV

With regards to capital allowances, make the £3k available to the limited company in the first year of trading

thanks in advance for your replies, no matter how brutal!!

 

Replies (14)

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Psycho
By Wilson Philips
18th Jun 2020 22:41

It is acceptable. Whether it is the best option, who knows?

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Replying to Wilson Philips:
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By dorset1992
18th Jun 2020 22:49

In the sense of tax efficiency do you mean?

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Replying to dorset1992:
Psycho
By Wilson Philips
18th Jun 2020 22:59

Yes.

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By Calculatorboy
19th Jun 2020 08:16

Remember the elections

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By dorset1992
19th Jun 2020 08:53

Thanks for your reply. I understand that we are able to make the transfer at a value that doesn’t create a balancing charge or allowance, but the market value in this case is actually the FA register NBV of £5k - are we able to debit FA, credit DLA £5k and then when it comes to the tax computations for the Ltd co, bring in the £3k TWDV as b/fwd from pre-incorp?

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By Truthsayer
19th Jun 2020 15:33

If you have brought them into the company at a value of £5,ooo, there is a deemed disposal of that amount in the sole trader's CA computation, resulting in a balancing charge of £2,000. You can't have it both ways. Also, you get no AIA in the company on this.

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Replying to Truthsayer:
Psycho
By Wilson Philips
19th Jun 2020 15:45

Yes you can have it both ways - reference Calculatorboy’s comment about “elections”

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By dorset1992
19th Jun 2020 18:56

I don’t understand how that would be having it both ways? If the FA reg NBV is £5k, and you introduce to the Ltd co for that value via a journal, but then when it comes to claiming WDAs you continue on from the £3k TWDV, you aren’t particularly gaining any sort of advantage are you?

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By Paul Crowley
19th Jun 2020 19:09

The director can conveniently have £2000 tax free from company

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By dorset1992
20th Jun 2020 08:40

Thanks for your reply Paul, and I understand your response, as in theory if the assets were sold to any other party for the FA NBV mentioned, it would give rise to a balancing charge in the ST accounts.
I just wondered if there was any sort of case for continuation from the ST accounts into the Ltd co, both from the perspective of FA register and CA computation. I’m struggling to find the HMRC guidance on the matter...

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Replying to dorset1992:
Psycho
By Wilson Philips
20th Jun 2020 09:40

Yes there would be a balancing charge if sold to a 3rd party. But you’d be getting £5k for nothing whereas to get the cash out of the company someone is presumably going to have to work for it, generating profits on which tax would be payable. So the £2k isn’t really ‘tax-free’.

Re your question, it’s already been answered - transfer assets across at NBV for the accounts and at TWDV (by election) for tax.

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By Paul Crowley
20th Jun 2020 13:27

Dividend tax free and higher rate personal tax free
That is why goodwill is sometimes recognised and credited to DLA when in reality a challenging item to sell to a genuine third party

Subject to the above, agree completely

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By mikeyban
19th Jun 2020 09:28

Yes but limit the capital allowances to 18% on the £3000

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