In a recent tax case, David Keyl v HMRC, decided in the Upper Tribunal, the advisors acting for the appellant were unable to reverse a previous FTT decision.
The facts of the case were as follows:
- David Keyl ran a sole tradership which he transferred to a limited company on 1 April 2009.
- It was agreed that the final day of trading as a sole trader was 31 March 2009, which was also the normal accounts year end date.
- During July 2008 David purchased a van for his business.
- When the final accounts for the sole tradership were submitted for the year to 31 March 2009, the advisors made a claim to write off the van purchase under the AIA provisions.
Readers will no doubt see why HMRC challenged the AIA claim?
As part of their judgment the UT made the following comment:
Section 38A of CAA 2001 provides that AIA qualifying expenditure must be incurred by a qualifying person on or after 6 April 2008 and must not be excluded by any of the general exclusions in section 38B. This appeal is concerned with General Exclusion 1 which reads as follows:
“The expenditure is incurred in the chargeable period in which the qualifying activity is permanently discontinued.”
Section 6 CAA 2001 defines ‘chargeable period’ for income tax purposes as the period for which accounts are drawn up for the purposes of the trade.
In this case the chargeable period was the year ending 31 March 2009.
After valiant attempts by the advisors to promote their appeal the original decision of the FTT was upheld and the claim for AIA was denied.
The key learning for budding tax practitioners in this case is that what happens at the end of an accounting period happens during that period. For a valid AIA claim to succeed it must not be part (or at the end) of a chargeable period when the trade is permanently discontinued.
No doubt if the advisors had spotted the van purchase, joined up the dots, and ring-fenced the AIA claim – by discontinuing the sole tradership after the 31 March 2009 – all would be well.
This is just one of the recent tax cases that will be added to our InforLearning portal this coming week.
It is a useful reminder that tax practitioners and trainee staff need to be on the lookout for exclusions and timing issues when advising clients on tax planning strategies: such as the incorporation of existing businesses.