Cash basis self empl. selling assets cessation

Discussion in 'Accounts & Finance' started by tnikod, Jan 21, 2020.

  1. tnikod

    tnikod UKBF Newcomer Free Member

    4 0
    Hi,

    I was wondering if anyone could help how to account for the below aiming for a tax savings for both ltd company and the director.

    Ex-self employed person was claiming purchases of small assets through cash basis over the period of 2012-2018. The total historical cost is around £10k but assume it could not be sold for more than £5k now. Then he ceased the self-employement and opened Ltd where he is the only director. I know that he can sell the assets to Ltd, and the company can claim it as either expense (for the smaller assets) or capital allowance (for the more expensive ones). Question is, what consequences would that have on his personal taxes (i.e. not the company which would benefit from buying the assets)? I understand that £6k is free allowance for personal possessions sale but as he did not buy these things for personal use in the first instance, this would need to be claimed on his tax return, right? However, since the assets were never claimed through capital allowances, how can he claim a sale of asset on his self employment, since there is none recorded, and since the self employment already ceased? Where this would be reported on the personal tax return besides other income (salary and dividend)?
     
    Posted: Jan 21, 2020 By: tnikod Member since: Jan 21, 2020
    #1
  2. dotcomdude

    dotcomdude UKBF Regular Full Member

    321 42
    Are you saying that a person bought some assets that he used in his business, but never claimed any tax relief on them?

    If so, when he sells them now (at a lower price) - to the limited company or to anyone else - there will be no gain to account for and therefore no tax to pay.
     
    Posted: Jan 21, 2020 By: dotcomdude Member since: Jul 27, 2018
    #2
  3. tnikod

    tnikod UKBF Newcomer Free Member

    4 0
    Yes, there was a tax relief, since he claimed them as expenses under cash basis on his self-assessment when being self-employed. If he has not claimed them at all as a self employed person, then I would agree, it would be a sale of personal asset with £6k free tax allowance, but since he used them in a business, it is not so straight-forward.
     
    Posted: Jan 21, 2020 By: tnikod Member since: Jan 21, 2020
    #3
  4. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,782 805
    post cessation receipt on tax return.

    Receipts from the disposal or deemed disposal of items of a capital nature under the cash basis

    Any proceeds or capital refunds received in respect of an asset whilst the business is using the cash basis should be brought into account as a receipt of the trade where the whole or part of any expenditure paid to acquire, create or improve the asset has been

    a. brought into account in calculating the profits of a trade under the cash basis

    Receipts from the disposal or deemed disposal of items of a capital nature after leaving the cash basis

    Any proceeds in respect of an asset where the expenditure would be qualifying expenditure under Parts 2, 5, 6, 7 or 8 of CAA 2001 should be brought into account as disposal proceeds under these parts of CAA 2001 rather than as a receipt of the trade.
     
    Last edited: Jan 21, 2020
    Posted: Jan 21, 2020 By: UK Contractor Accountant Member since: Sep 18, 2013
    #4
  5. tnikod

    tnikod UKBF Newcomer Free Member

    4 0

    That explains it exactly, many thanks!
     
    Posted: Jan 21, 2020 By: tnikod Member since: Jan 21, 2020
    #5