Balancing Allowance on Cessation of Business

[mowa]

My accountant who was semi retired and worked from home recently fully retired and moved to Spain.I hope someone might kindly help me with what I think should be a simple matter.

My last set of accounts go up to the year ending 31st December 2003.I stopped trading in my "one man band" business at the end of April 2003. As I was not doing any other paid work I continued to pay my self employed NI contributions so as to keep my record up for the state pension and also I was n't sure if I wanted to pack up the business altogether.

The only fixed assets in my accounts of 31st December 2003 was my van which I sold for spares or repair at the end of April 2004.

Depreciation in my Trading and Profit and loss Account each year has been charged at 25% of the written down value. (Just looked back at three sets of accounts).

The written down value in my last set of accounts (31st December 2003) was £580 and I sold it for £29 after deducting advertising expenses.

1)Am I correct in saying that the balancing allowance is £551?

2)I have the shortened version of the SA tax return can anyone tell me into which box I should enter this figure or does it require a letter of explanation?

3) I have now become a house husband and decided to not continue in business. I have stopped my self employed NI contributions but can I claim a refund on the grounds that I have not been trading?

Thank you in anticipation

[King_Maker]

1. The balancing allowance is the difference between the sale proceeds and the Tax Written Down Value - this could be (and often is) different to the Written Down Value in the accounts.

You need to view the Capital Allowance calculation for the previous tax year.

2. Capital Allowances are treated as trading expenses. No letter required.

3. I assume you are referring to Class 2 NIC? If so, you may be able to a refund if you are below the Small Earnings Limit for the re elvat tax year(s).

[mowa]

Thanks for the reply King_Maker.

1) Depreciation charged in the first yearin my P&L account was 25% of the intial purchase price and from then on 25% of the WDV. I conclude from this that the WDV in my accounts is the same as the WDV for tax purposes?

2)I kept the van for personal use after I ceased trading. Does this mean the balancing allowance should be calculated on the resale value at the time I ceased trading?

3) What date do I declare as the date I ceased trading 1.05.03 or 31.12.03?

Thanks in advance :-)

[King_Maker]

1. Yes, they could be the same.

2. Yes.

3. Cessation seems to be somewhere between those 2 dates. The relevant date should be the date you finally decided to cease the business.

Don't forget to restrict the Capital Allowance claim by any private use, if appropriate.

[mowa]

Excellent, thank you very much King_Maker.

3) I honestly do not know when I decided to give up the business. That date could lie between the last day I worked in the business (30.04.05) and now. Is there any benefit for me specifing a particular date?

Thanks again.

[mowa]

sorry, the date in my post above should be 30.04.03

[King_Maker]

Yes, the date of cessation can be important if time apportionment of the profit of the final trading period is required.

Whether it is significant will depend on your exact circumstances.

Have you read the Help Sheet IR222 which has information on Capital Allowances and how to calculate Business Profits?

It is downloadable from their website.

http://www.hmrc.gov.uk/leaflets/menu.htm

[mowa]

Thank you once again King_Maker for the excellent advice.

I'm off to read IR222 :-)