Not sure how this should be treated?

scottmcgarvey

Hi

Have helped out my cabbie friend with his SA form for some years now, having had the (mis)fortune to work for the IR many moons ago. Each year I get a little more out of date though.

My friend sold his taxi business, due to ill-health, last April, the writing had been on the wall as he had been too unwell to drive himself, and had a driver using his cab for most of the previous year anyway.

Anyway - when he bought the cab, he bought it with a much coveted "Hackney Carriage" plate, but 'only' paid not far from the going rate for the car at the time. I have worked his capital allowances each year he has been going, cars have come and gone - so disposals and acquisitions. Then last April, he sold the car - complete with plate, for around £35k. Of that, the car was worth a maximum of £5k, so in effect, he got £30k for selling his Hackney Carriage Plate.

(For those that don't know the difference - a plate means you can use the ranks, park up and wait outside places, stations & the like - only so many are issued by each town council. "Drivers" are people who drive a taxi, but it must be 'pre-booked', they are not allowed to pick anyone up or use the ranks).

He got a 10k downpayment, then will get the rest at 1k per month for the next 2 1/2 years. Techincally he has "disposed" of the car - and I suppose a small proportion (Parkers guide probably) can be used in the Capital Allowances calcualtion.

What about the rest though? - and the fact it is split over such a long payment schedule?

Many thanks in advance

scottmcgarvey

Reading through - looks like this is best treated as a Capital Gain (business), and taking it from there. Obviously he has his annual exempt amount, how would the I.R. treat the "staggered" payments though? £10k last year, £10 next year and the year after, and £5k the year after that.

Will the Revenue treat the payment as being staggered in this way, or count the payment as £35k as all being received (in effect) this year?

scottmcgarvey

Thanks Jimmo - yep, should've took more notice at the time when he bought the taxi...(a year or two before I did his tax).

Realise that strictly the C.A's for the first car should have been limited to the car price (with the proportion relating to the Hackney plate separated) - this hasn't happened, although it was 12 years ago, the car was replaced within a year or two also. Seems a bit daft to re-open that one up now...

As for the tax due, yep, CGT, he has his annual exempt amount to come into play. I am wondering (being as it was in April of 2008 - round about the 1st week), whether it will be best of in 2008/09 now. Balance off that he can have indexation and taper relief, against the new "Entrepreneurs Allowance" that would reduce the tax rate to 10%...

Nope, I can't think of anyway (besides a "only sold a 33% stake in the plate - which wouldn't wash for a minute - otherwise where is share of the takings), that the I.R. will *not* treat the 35k as being all paid in this tax year - despite the fact that he has only had 10k of it (he hasn't yet been receiving the promised 1k instalments).

Thanks for your help - and appreciate the links etc. He is S.A. anyway, so has been paying "Payments on Account" - overall he used to the half in Jan, half in July, balancing payment in Jan already. Just better prep him for a humongous one for this C.G. that is due.

scottmcgarvey

jimmo wrote: »

No promises, but if a mistake was made in the capital allowances12 years ago, I can’t see that the amount of tax unpaid for in-date years would justify going back for extended time limit assessments. However, the correct procedure now is to correctly identify the acquisition cost of the licence to make the Capital Gains computation.
However, have you missed the obvious?
If he sold in 2007/08 for £30,000 then, even without an acquisition cost there is a maximum gain of £30,000. Business taper brings that down to £7,500 and that is covered by the annual allowance.

D'oh - thanks Jimmo. Yes, I HAVE missed that. See it now in the notes, I think where I am still sulking about losing taper relief for CG on the sale of my flat (finally went through August 08), I had forgotten about the taper relief. So 25% of gain chargeable. From memory he had paid around £8,000 for the car back in 1996, I would estimate a good £6k of that for the plate. Will make further enquiries. It is unfortunate that it was missed back then for the Capital Allowances though - but wasn't under "my watch" - and I recall that car wasn't around for long, before being sold.

In his case, later of 6/4/98 and date acquired. But of course still nearly 10 years. Well over the 2 years to make it 25% of the gain chargeable. Even if the whole purchase price was said to be the value of the plate, it would still be brought down to below the £9,200 limit. So nothing chargeable.

Just hope (I know it was early April) that his V5 (and the like) match up to show it was before April 5th!

Thanks again.

scottmcgarvey

If after 6th April, then 18% on 5/9 of the total gain* - likely to be around £24k. Circa £13,333 chargeable. Less £9,600 annual exemption at 18%.

£3,733 x 18% = £671.94

Think that's right. Looking a lot less scary now anyway!

*"Entrepreneurs Relief"?