Business started and ceased in same tax year, help required.

jilbo

I wonder if anyone could help me with the following please, I need reassurances.

1. A business traded from September 07 to February 08 only then ceased. The business traded from a rented warehouse and almost £4000 was spent on improvements,which included furniture,fire extinguishers and a sky box.
Can capital allowances be claimed for the period, it's thrown me with it being for such a short period.

Not sure yet what happened to the furniture etc but I don't think it was sold off to anyone.

2. A contract was entered into for rental of a credit card terminal, the lease term is 33 months, do I take it that any payments made after the business ceased trading should be paid by the lessee and it is not allowable expenditure as there is no further income to put it against, or could he transfer it's use to his new business as the contract appears to be in the individual's name rather than a company name.

3. Even without any capital allowances the company has made a loss. Obviously this cannot be carried forward or back (his new venture is a completely different trade). He was employed until August 07 so am I right in thinking he can use the loss to reduce his total taxable income for the year and receive a refund of the tax paid through PAYE.

4. I believe that there was also some resale stock left when the business ceased, which I beleive is sitting in a garage somewhere. Does this need to be accounted for.

Any comments would be greatly appreciated.

jilbo

If anyone could comment on just one of these queries that would really be a big help.

The inland revenue are saying they are complex queries and I would have to 'speak to someone higher' in which case I would have to hold a 64-8 for this client. I am reluctant to do this because he is in a hurry, wants everything for nothing and has already stated that he wishes to do his own accounts and return next year after hinting that I should advise him how to do it!!

Many thanks in anticipation.

Bluewednesday

Sounds to me like you need to ditch him in that case! Why would you put yourself out for him to then not have the job again?

WDA's can be claimed but restricted for the period of trading but as trade has ceased you will have to account for the disposal of the assets so you will need to know what has happened to them then sort out balancing allowances and disposals.

I wouldn't transfer the use to the new business for the terminal if he's not going to use it.

Loss relief can be applied to total income for a sole trader - you stated company - is it a limited company?

Account for it as goods taken for resale - put it to drawings/directors loan as he's going to do something with it presumably!

Poodle

jilbo wrote: »

3. Even without any capital allowances the company has made a loss. Obviously this cannot be carried forward or back (his new venture is a completely different trade). He was employed until August 07 so am I right in thinking he can use the loss to reduce his total taxable income for the year and receive a refund of the tax paid through PAYE.

If this is a Ltd compnay then sideways relief to the individuals general income will not be available.

If he is a sole trader then relief will be avaiable under ITA 2007s64. I have just had a similar case and I was advised that this is a high risk area for investigation.
To claim the relief the trade must have been carried on on a commercial basis with a view to the realisation of profit. If you are happy that this was the case then claim the relief. If the trader has any evidence of this for example a business plan, then it would be advisable to tell him to keep hold of this.

Have you considered if the loss is going to be large and exceed other income in 07/08? Why not take the loss back to 06/07 and off set there first and then if anything remains take what remains sideways in 07/08?


Poodle

jilbo

Thanks for your advice Bluewednesday. I do regret taking him on, most of the negative stuff came to light after I'd agreed to take him on and agreed a price.

Sorry, he is a sole trader and not a limited company. I will check with him what actually happeneed to the assets and deal with them appropriatley.

As his business has made a loss large enough to cover the tax he paid through PAYE without including any of the refurbishment or assets then I could treat them as drawings like you said. Is it possible to completely disregard the assets and not claim any capital allowances? I know this sounds a bit unethical but he has no other income to put a greater loss against so the client isn't losing out, and the inland revenue aren't losing any tax etc.

To be honest I just want to get his accounts finished and get rid of him.

jilbo

Thanks Poodle.

Maybe I'd better send in a 64-8 after all. Or would the inland revenue accept that he took the assets for his own personal use when the business ceased, and not claim any allowances.

As for resale stock I don't think he can give me a value of what was left, I know what he's sold, so if he tells me his mark up can I calculate the closing stock value and deduct that amount from purchases as items for his own use?

I don't want to get the guy investigated or do untoward. Oh do I wish I'd never the guy!!