Sole Trader Cessation - Capital Balance

CapedCrusader

Hi folks,

During a tax (calendar year) year, my Sole Trader business ceased and a limited company was established to continue the business.

The Sole Trader assets were sold to the company at cost in the form of a positive balance on the Director's loan account.

How should I present this in the tax return for this year. How is the transferral of assets accounted for?

Should the Sole Trader accounts show a positive balance, or should this transaction be somehow included in the sole trader accounts to show a zero balance at the end?

Would be grateful for any input.

democrates

I'd love to know this too I've a similar issue with a sole trade cessation but I'm not an accountant.

It seems logical for the ceased sole trade that assets and liabilities should be zero at the end, as they were in the beginning, otherwise it's still a going concern.
Thing is, should the assets be treated as sales and then the proceeds as drawings, or just drawings?

Either way my understanding is that the amount is liable to income tax, so I'm going to pay that and put an expression of doubt cover note on the return. If I've overpaid I'll get a nice surprise later, better than the risk of a shock including interest and penalties if an underpayment isn't discovered until later.

smeharg

You both need to speak to an accountant as you clearly don't understand the mechanics of this. You need to make sure it's done properly otherwise you could end up with an unexpected Capital Gains Tax bill.

Don't use the expression of doubt - that's not what it's for.

Mr. Incognito

There is a specific tax exemption for transfer of business.

Seek competent professional advice

Thread closed.