So is it possible then for a sole trader, converting to Ltd Co., to 'sell' any equipment to the new company? I purchased appx €5,000 worth of hardware/software for my business as a sole trader in 2006 but then switched to Ltd Co. last September. Should my new company have paid me for that equipment it now uses?
I was VAT registered at the time and claimed the VAT on all the purchases.
Sole traders do convert to ltd companies. Often this involves the company, continuing to use equipment purchased originally by the sole trader. The sole trader would have a VAT input credit on the equipment and a capital allowance (12.5% pa ). In the situation as you describe the following could have been the case :-
Sole trader :-
Purchase for say €5,000 + VAT
VAT claim €1,050 @ 21%
Capital Allowances for say 1 year €625 set against sole trader profits
Ceases after 1 year on setting up company
Sells equipment for say €4,375 + VAT to company ( the cost less the year's wear & tear assuming this realistically reflects the value after one year's use) and pays the VAT to Revenue. Thus ending up with a net VAT claim on the actual use value of the equipment for the 12 months. ( €5,000 - €4,375 )
Company :-
Company purchases at the €4,375 + VAT
Company gets VAT input credit of €918.75
Company gets capital allowances of €547pa ( on €4,375 @ 12.5% pa )
The company could pay either immediately or by way of director's loan to the company which would be paid as soon as the company could afford to. ( no tax implications on directors loan TO the company )
One important thing is if a sole trader claims VAT on an item and uses it for a short period then it becomes used by the either personally or in another capacity then a self-supply is deemed to occur and some of the VAT or tax claim may be repayable to Revenue. An e.g. here is one buys a PC for €1,000+VAT as a sole trader, claims all the VAT €210. Then after one month, ceases sole trader & uses PC then Revenue would be entitled to the bulk of the VAT back as it was not wholly & exclusively used in the business.