Incorporation and transfer of vehicle ownership
Discussion
Hopefully someone on here can offer a bit of advice.
I am currently a VAT registered sole trader, but planning on incorporating to Ltd company around the end of the month.
I am also looking at purchasing a commercial vehicle right now.
If I were to buy it now, in my name and reclaim the VAT, when I incorporate would I need to change ownership to the Ltd company?
I am trying to work out the best way of buying it while also transitioning across.
The VAT number will be switched to the Ltd company and all current assets.
The vehicle will solely be used for business (genuinely!) so I do not think BIK applies.
I am currently a VAT registered sole trader, but planning on incorporating to Ltd company around the end of the month.
I am also looking at purchasing a commercial vehicle right now.
If I were to buy it now, in my name and reclaim the VAT, when I incorporate would I need to change ownership to the Ltd company?
I am trying to work out the best way of buying it while also transitioning across.
The VAT number will be switched to the Ltd company and all current assets.
The vehicle will solely be used for business (genuinely!) so I do not think BIK applies.
In a simple world, the vehicle is transferred to the new ltd co. at its current market value.
If the sole trader claimed capital allowances on the vehicle (which it normally would), then the "disposal" of the vehicle has to be accounted for in the final capital allowance computation of the sole trader business. As the vehicle is being transferred to the ltd co. with no actual "sale" of the vehicle taking place, Market Value is used as the "sale proceeds" in the final capital allowance computation of the sole trader.
In the ltd. co, the vehicle is being "purchased" and will therefore be eligible for a capital allowance claim in the first capital allowance computation of the ltd co. Again, because no money was actually paid for the vehicle by the ltd co, the same market value used in the final sole trader capital allowance computation will be used as the purchase price in the ltd co. capital allowance computation.
Please note that the disposal of the vehicle in the old sole tradership could very well trigger an additional Income Tax and Class 4 NI charge in your personal tax calculation. Even though the limited company will get the benefit of the capital allowance claim later on, the amount of tax reduction obtained by the limited company will be less than the extra Income Tax and Class 4 NI paid by the individual. This is even more important if the individual is a higher rate taxpayer and perhaps receives Child Benefit and has to pay some or all of the Child Benefit back.
VAT might be a bit different.
Is the ltd co. obtaining a new VAT number or is it acquiring the old sole trader VAT number.
If the latter, HMRC will permit transfer of old sole trader assets to the ltd. co as a "VAT Neutral" event and no VAT needs to be paid by the sole trader or reclaimed by the company in respect of such transfers. This is covered by their "Transfer of a Business as a Going Concern" rules.
If the sole trader claimed capital allowances on the vehicle (which it normally would), then the "disposal" of the vehicle has to be accounted for in the final capital allowance computation of the sole trader business. As the vehicle is being transferred to the ltd co. with no actual "sale" of the vehicle taking place, Market Value is used as the "sale proceeds" in the final capital allowance computation of the sole trader.
In the ltd. co, the vehicle is being "purchased" and will therefore be eligible for a capital allowance claim in the first capital allowance computation of the ltd co. Again, because no money was actually paid for the vehicle by the ltd co, the same market value used in the final sole trader capital allowance computation will be used as the purchase price in the ltd co. capital allowance computation.
Please note that the disposal of the vehicle in the old sole tradership could very well trigger an additional Income Tax and Class 4 NI charge in your personal tax calculation. Even though the limited company will get the benefit of the capital allowance claim later on, the amount of tax reduction obtained by the limited company will be less than the extra Income Tax and Class 4 NI paid by the individual. This is even more important if the individual is a higher rate taxpayer and perhaps receives Child Benefit and has to pay some or all of the Child Benefit back.
VAT might be a bit different.
Is the ltd co. obtaining a new VAT number or is it acquiring the old sole trader VAT number.
If the latter, HMRC will permit transfer of old sole trader assets to the ltd. co as a "VAT Neutral" event and no VAT needs to be paid by the sole trader or reclaimed by the company in respect of such transfers. This is covered by their "Transfer of a Business as a Going Concern" rules.
matt-ITR said:
The VAT number is being transferred - so I guess if I purchase the vehicle now, in my name and don't transfer ownership I would be liable to repay the VAT?
No - transfer of a business as a going concern obviates the need to declare the VAT on the "selling" entity and reclaiming the VAT by the "buying" entity.Gassing Station | Business | Top of Page | What's New | My Stuff