How to maximise your tax relief when incorporating your business?

  • by Carole Jordan
  • 13 Jun, 2016

You can claim capital allowances for the cost of the equipment used within your business.
However if you then decide to incorporate your business things can get complicated.
Here’s our tip to avoid losing out.

Transferring your capital equipment without losing tax relief

When you transfer your business to a limited company the legal position is that you are selling your business to your company. Because of this your equipment is considered sold, at the market value price, and then re-bought by your new business for the same price. Putting a value on equipment is not always easy and can sometimes lead to a loss of capital allowances.

100% Capital Allowances under the Annual Investment Allowance are not available in the last year of trading, this can be onerous on the business in the year before it is incorporated. There may also be balancing charges arising from the market valuation of the equipment, meaning tax relief previously given is clawed back and future allowances are spread over a number of years at 18% per annum.

How to avoid this capital allowance chaos?

  • Your old business (unincorporated) and new business (incorporated) can elect to transfer your equipment at the tax written down value. This allows any equipment purchased in the penultimate year to receive capital allowance at the usual writing down amount and to continue that unbroken in the Limited Company.
  • Try to avoid spending large amounts of money on any equipment in your final accounting period of your sole trader/partnership business.
  • If you have to invest in equipment close to your incorporation date, draw up your final set of accounts after this investment but leaving a further period before your incorporation. This will allow you to claim full capital allowances on equipment within your penultimate set of accounts.

This is a complex area and specific to each business and the nature of your capital items. If you’re thinking of incorporating your business speak to a qualified accountant before you do so.

Contact Carole Jordan on 01273 882200, or email us at info@businessheads.co.uk for a full and comprehensive service to help you incorporate painlessly.

All details above were correct at the time of publishing - for more up to date information please get in touch .

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