The decision in David Alexander Keyl v HMRC [2015] FTC/97/2014, in which The Upper Tier Tribunal (UTT) upheld the decision of the First Tier Tribunal to deny the appellant's Annual Investment Allowance claim for the final period of trade. It highlights the importance of planning ahead when ceasing or incorporating your business.  

Background facts

  • Mr Keyl was a sole trader who drew up his final accounts to the year ended 31 March 2009. 
  • On 1 April 2009 his company commenced trading, having acquired the trade and assets of the sole trader as a going concern.
  • In July 2008 Mr Keyl purchased a van, and subsequently submitted a claim for capital allowances in respect of this expenditure. 
  • HMRC denied the claim on the grounds that capital allowances are not available for the chargeable period in which the qualifying activity is permanently discontinued.
  • Mr Keyl argued that the activity was not discontinued during the year ended 31 March 2009.  He continued trading right up to the very end of the last day of the accounting period.

The decision

The Upper Tier tribunal agreed with the First Tier Tribunal and with HMRC confirming that the trade was permanently discontinued in the period to 31 March 2009.  They took a pragmatic approach to the issue, deciding that the cessation could not have occured in the period from 1 April 2009 because the sole trader business did not trade at all during that period, and so it must have occurred in the period to 31 March 2009.

This confirms the principle that something that happens at the very end of an accounting period happens during that accounting period.

Lessons and planning points 

Mr Keyl was unfortunate as it would have been a relatively straightforward matter to arrange for his incorporation date to be delayed in order to secure the capital allowances on his van.

Although a decision of the FTT does not set a case precident, following this decision it might be easier going forwards to consider that capital allowances are not available for the final trading period of a business. Rather than drawing his final accounts up to 31 March 2009, Mr Keyl could have continued trading for a further month, delaying the transfer to the company so that his final sole trader accounting period ran from 1 April 2009 to 30 April 2009.  He would not have benefitted from capital allowances for that month, but the expenditure on his van would have qualified for the annual investment allowance introduced from 6 April 2008.

Alternatively, since the capital allowances act (CAA2001) defines a "chargeable period" as a "period for which accounts are drawn up for the purposes of the trade, profession or vocation" it is possible that had Mr Keyl drawn up accounts for the 11 months to 28 February 2009 followed by a second set of accounts for March 2009 he would have been successful in his claim.

It is also worth noting that the First Tier Tribunal commented that they had seen no documentary evidence relating to the transfer of the trade from the sole trade to the company.  If there had been a formal transfer document, dated 1 April, which was drawn up to transfer ownership of the assets and trade at, say, 9am, would that have been sufficient to support an argument that the sole trade did continue after 31 March?

Useful links

David Alexander Keyl v HMRC [2015] UKUT FTC/97/2014

David Alexander Keyl v HMRC [2014] UKFTT TC03619

 Practical Tax guides: