Capital Gains Tax?

SussexAccountancy

Hi

I have a friend who is doing a self assessment herself - she is graphic designer, and tax liability at the moment is a couple of hundred pounds so very low income for 2011/12.

She has the following query:

She bought a computer for £1150 a few years ago. (after 2008)
Sold it in Jan 12 for £1300

Please note: she originally expensed the computer in ignorance, rather than capital allowances.

Checking sources, my understanding is:

She should/could have claimed AIA for this at 100%
She doesn't have to declare this (assuming she claimed capital allowances in the first place) as it is below the CGT limit.
Capital Allowances claimed for previous years do not have to be taken into account for CGT.
Finally, if the above is all correct, what advice should I give her?

My assumption based on the above is she doesn't have to declare the income above, as per points above - although it was expensed and not capitalised, the tax liability is the same. Apologies - she only asked me this question last night, so haven't been able to do much reading about it. Not sure if I've made much sense!


thanks for any help I can throw towards a friend!

JodieR

How very odd that she's selling it years later for more than she bought it for. Anyway, assuming this is what happened she will need to be taxed on the £1300. I'm not 100% sure on the correct place to include it, I would guess at the best box to put it in would be the 'balancing charges' box with the capital allowances, otherwise include it in sales or 'other business income'. Might be best whatever way she declares it to put a note in the white space.

T.C.

I would include it as profit on sale of capital item on the P & L, and then include it in balancing charges.

T.C.

By the way, this is nothing to do with CGT.

EASy

I disagree.

I see a balancing charge of £1,150 arising. The deduction from the general pool balance (I appreciate this asset wasn't pooled) in respect of sale proceeds cannot exceed cost.

The excess of £150 represents a Capital Gain, which is exempt under the chattel rules (not on the basis of being a wasting asset, as it qualified for Capital Allowances, but because sale proceeds don't exceed £6,000).

JodieR

EASy wrote: »

I disagree.

I see a balancing charge of £1,150 arising. The deduction from the general pool balance (I appreciate this asset wasn't pooled) in respect of sale proceeds cannot exceed cost.

The excess of £150 represents a Capital Gain, which is exempt under the chattel rules (not on the basis of being a wasting asset, as it qualified for Capital Allowances, but because sale proceeds don't exceed £6,000).

Ahh, very clever, yes, this is how it's done. However, I doubt very much that when it was sold it was still in its original state, I would imagine it's had a number of 'enhancements' and so probably hasn't technically made a profit at all.