Change from Sole Trader to Limited Company

LornaLancaster

I have a sole trader who purchased a car solely for the use of his business (no private use). He was trading as a sole trader for 8 months and now has started a limited company. The car qualifies for writing down allowances at 18% due to the CO2 emissions, so do I put through £720 as a capital allowance in the sole trader accounts and then transfer £3280 to the limited company? Then in the limited company Dr Assets £3280, Cr Director's Loan £3280? As this falls into the capital gains tax allowance, he wouldn't personally have to pay CGT on the gain, but it seems too good to be true that he can take £3280 from the company tax free when the company pays the loan back to the director, then can he claim capital allowances through the company on the remaining £3280? Or am I missing something here? Thank you.

douglasstroud

What has CGT got to do with it?

LornaLancaster

Because he has personally made a sale to the limited company.

douglasstroud

But are cars not exempt from CGT
Anyway my understanding is that if the car was purchased in the final accounting period of the sole trader then there would be no WDA available, so just the £4k for the company to purchase it either by payment or through the DLA

MarieNoelle

Is the car in the name of the company now?
Who is the registered owner of the car?

Assuming this is now a company car beware of the benefit in kind implications.

LornaLancaster

The car will be transferred to the Ltd co name. The company was only set up today. There won’t be any BIK as the car is kept at the registered address and is not used personally at all.

So could the director claim WDA on the car within the Ltd co and also could the company pay him back personally for the directors loan which has been created?

douglasstroud

The Company can claim CA for the car and yes the director can draw the purchase price from the DLA
But has the car appeared in the sole trader accounts at all?

LornaLancaster

I haven’t done anything with it in the sole trader accounts yet. if I was to do as you suggest in the company accounts what would be the corresponding entries in the sole trader accounts?

MarieNoelle

You would need to get a market value for the car at the time of transfer (as the sole trader and Ltd co are connected). This is the disposal value for calculating the balancing charge/ allowance on the car in the sole trader's tax comps.
As @douglasstroud suggested, no capital allowances are allowed in the year of cessation.
Going back to the car being 100% business use, make sure this is all documented (hopefully the registered address is different to the director's address?).

burg

I'd consider all of the useful advice above. In most circumstances a car in the company for the directors use will be a benefit in kind. Very difficult to argue if they do not have separate business premises.
It would be unlikely that I would be advising the client to transfer the vehicle to the company. I would instead be telling them to record and charge mileage to the company.

LornaLancaster

Thanks very much for your advice everyone. I will advise the client to claim mileage as this seems the best solution, especially as his registered office is his home address.