Selling a business vehicle to settle a debt - advice?

[paulp123]

Hello,

Can anyone offer me a bit of advice os settling a business debt with an asset?

My business is a little cash poor at the moment and I have a supplier who is willing to take a company vehicle to settle a debt.
Is this something anyone has experience of and would you recommend, or avoid this course of action?

Any thoughts & experiences greatly appreciated.

Cheers in advance!

[jonamv8]

how much is the debt and what value is the vehicle

how is supplier valuing the vehicle

does the vehicle have any known issues

[paulp123]

jonamv8 said:

how much is the debt and what value is the vehicle

The debt is £6000 and the vehicle is valued in the range of £5500 - £6500. He knows I was looking to sell the vehicle anyway and its someone I have a good relationship with so it sort of works for both of us.

how is supplier valuing the vehicle

It's based on current market valuation from places like Autotrader etc.

does the vehicle have any known issues

No, has been well maintained & is in good condition.

[ClaphamGT3]

For a number of years my brother had a BMW E34 540 that was taken in settlement of a debt. The main issue, as I recall, was satisfying HMRC how the asset had been acquired as there was an asset but no obviously corresponding expense in the purchase ledger. Furnishing them with the relevant paperwork cleared it up and there were no other issues

[paulp123]

Yeah, I did think there would have to be lots of paperwork. I have an invoice from my supplier, so I guess if I create a receipt for them along with the transfer of the vehicle I should be covered? It's a commercial vehicle that was claimed in my AIA so I think I have to class it as a sale in that sense and will be taxed accordingly.

[Eric Mc]

Is your business VAT registered?

Did you reclaim Input VAT on the vehicle when it was purchased?

[paulp123]

Hi Eric,

Yes its VAT registered and I did claim VAT input. I'm assuming I need to factor the output in too with the transfer?

[Eric Mc]

Absolutely you do.

And there will also be an adjustment to your annual Capital Allowance claim based on whether there is a Balancing Allowance or Balancing Charge on the VAT Exclusive disposal proceeds of the vehicle.

[paulp123]

Thanks Eric,

Yes I assumed that it would go something like this -
purchased vehicle Price = £10k + £2k Vat
Dispose Vehicle Price = £5k + £1k Vat

As I claimed the vehicle at 100% to start with, I will have to pay Tax on the 5k as income and then the £1k Vat on my next VAT return.

Does that look correct to you?

[Eric Mc]

paulp123 said:

Thanks Eric,

Yes I assumed that it would go something like this -
purchased vehicle Price = £10k + £2k Vat
Dispose Vehicle Price = £5k + £1k Vat

As I claimed the vehicle at 100% to start with, I will have to pay Tax on the 5k as income and then the £1k Vat on my next VAT return.

Does that look correct to you?

Yes. The car currently has a Nil Written Down Value for tax purposes. Therefore, the full VAT exclusive sale amount of £5,000 will be treated as a Balancing Charge and added on to your business profits.

[paulp123]

Brilliant, thanks Eric Mc!