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Sole trader to limited company

NBV of Assets

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My Client has just started his limited company from being a sole trader, he has 130k in WDA's of Cars with a NBV of 90K, largely due to his refusal to use his WDA's in recent years as he was applying for a mortgage and wanted to keep his SA302 Tax computation higher. My question, I have applied DR 90K to the FA and CR 90K to the DLA, Do i adjust the WDA to 90K? or can I still keep using his WDA's as normal? I also understand that I have to write an election S266 CAA 2001to HMRC transferring the assets within two years. (This is my first rodeo so don't be too brutal)

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By Tax Dragon
21st Mar 2021 06:41

What does the s266 election do?

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Replying to Tax Dragon:
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By ko1970
21st Mar 2021 08:57

Do you have to make an election to let HMRC know that the client is transferring his Assets to a limited company?

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Replying to ko1970:
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By Tax Dragon
21st Mar 2021 09:59

You can tell HMRC things without making tax elections. A bit like when you make a claim, it changes the tax treatment when you make an election.

Perhaps read s266. (Or at least read about it - eg CA29040.)

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By Truthsayer
21st Mar 2021 08:35

What do you mean by 'he has 130k in WDA's'? That makes no sense. Do you mean he has so far had £130k in Writing Down Allowances, or did you mean the Written Down Value is £130k?

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Replying to Truthsayer:
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By ko1970
21st Mar 2021 08:55

He has 130k available in his capital allowance pool.

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Routemaster image
By tom123
21st Mar 2021 09:08

Does he really want to be paying company car tax BIK on 90k of cars?
Presumably none on finance?

Or even more being based on list price

Just thinking of other areas, like,

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Stepurhan
By stepurhan
21st Mar 2021 11:36

Why does he have £130k of cars in the first place? As a sole trader, you would normally expect him to only need one car so either this is one really expensive car or several less expensive ones.

The benefit in kind rules, at least with respect to the former sole trader, have already been raised on this. If there are multiple cars, knowing why might indicate other matters to be considered.

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By ko1970
21st Mar 2021 11:50

He rents them as private hire vehicles.

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Replying to ko1970:
By Duggimon
22nd Mar 2021 09:31

That's the kind of thing that would have been useful to put in the first post.

Is the renting of these vehicles the business activity, or is it ancillary to his main trade?

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Replying to Duggimon:
Psycho
By Wilson Philips
22nd Mar 2021 10:34

This is why I tend to answer the question asked, rather than attempt to offer advice based on assumptions. The 'missing' information is actually of little relevance to the original question, which was simply about how to account for/tax the transfer of the vehicles. No-one asked whether things might have been structured in a more tax-efficient manner.

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Replying to Wilson Philips:
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By Tax Dragon
22nd Mar 2021 12:20

It's why I tend not to answer questions at all.

I would still recommend that the OP reads s266. And s267. And, given the leasing angle, s267A.

Or at least reads about these provisions.

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Replying to Duggimon:
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By ko1970
22nd Mar 2021 11:37

The renting of vehicles is the business activity, My question is Can I still claim full capital allowances at the 130k he has left in his pool or can I only claim allowances up to his NBV

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Replying to ko1970:
Psycho
By Wilson Philips
22nd Mar 2021 12:36

If you follow TD's advice and read the legislation referred to you should have your answer.

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Kitten
By Hazel Accounts
22nd Mar 2021 12:47

Do not confuse the accounts treatment with the tax treatment. For accounts you are correct (£90k of assets), but you don't "adjust" the WDA to 90k. You can't keep using "his" WDA's "as normal"- his WDA pool will need to show the disposal proceeds of £90k and thus there will be a balancing allowance for his tax purposes.

The company starts afresh with a tax cost of £90k on which it can claim appropriate capital allowances.

S266 allows you to elect to transfer the WDA to the company at no gain/loss and so he wouldn't have a balancing allowance and the Company starts with £120k instead of the £90k. But you will need to check if the conditions for the election are met - as Tax Dragon says read S266 - s267A

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Replying to Hazel Accounts:
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By ko1970
26th Mar 2021 12:39

Thank you Hazel, That was a massive help

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