Reply to: Selling Personal / Sole Trader Assets to my own Limited Company

[SueEllen]

But how will HMIT view that this is a legitimate business needing a 5k piece of kit when he is full time contracting and very little evidence of income from it particulary when his business is under a general catagorisation?

Then now is the time to generate some income from it however small then. After all there are 7 days in a week and most clients only expect you to work for 5....

[northernladuk]

But how will HMIT view that this is a legitimate business needing a 5k piece of kit when he is full time contracting and very little evidence of income from it particulary when his business is under a general catagorisation?

[WordIsBond]

If it is legitimately 100% for business use, I'm not sure the motivation for doing it right now matters much. But you'd better have a strong case that your business needs this equipment.

There are two ways to arrive at an amount, either defensible. The first is simply to have the ltd co reimburse you for all expenses associated with it. I think there is a time limit for pre-incorporation expenses, so when the expenses were incurred may be a factor.

The second is to arrive at a market value. If this is less than the expenses incurred, you may have a loss in your sole trader business which could be used to set off sole trading income or employment income you earned as a permie. If it is more than the expenses, you can pay yourself more than the expenses but the difference probably becomes a profit for your sole trader business.

The first seems a lot cleaner, if the transactions are recent.

[northernladuk]

That's good news but I've changed my opinion based on all this and think selling it to the company is not a good idea. If we can pick holes in this then HMIT will have a field day. It's not true business decision so questionable. Hope the contract work out for you though. Just make your warchest your first priority.

[Chaz]

Indeed but now I'm wondering if this is genuine or an effort to reduce your CT... But only you know.

Not sure how to answer that. I appreciate all the help and assistance. It is genuine but also helps with reducing CT. Just trying to make ends meet. I may have a new placement early next week, disaster averted. Ive done a grand total of 30 days of billable work in this, my first contract.

The plan was that this 3 month term should have been extended, carrying through December and increasing the Limited Company's bank balance. 30 days is not a lot, but its OK for now. If I dont find anything in the next month or so, then im in trouble financially.

[northernladuk]

Indeed but now I'm wondering if this is genuine or an effort to reduce your CT... But only you know.

[Chaz]

Don't forget to consider your tax liabilities rather than emptying the bank. Divis can only be paid from profits remember. You probably know but just saying.

Are you referring to my personal tax liabilities or the companies? If company, understood. That is also why buying an asset from myself helps as its a pre tax excersize and reduces the overall profitability and then in turn corporation tax.

[northernladuk]

Don't forget to consider your tax liabilities rather than emptying the bank. Divis can only be paid from profits remember. You probably know but just saying.

[Chaz]

Well, yes. Ive just started to contract and the company Im contracting to has put a freeze on IT spend. My role has been cut. So as Ive not been doing this for very long and been a perm until now (with little fallback monies), Im a bit stuck.

So hoping I will have something fairly quickly, but uncertain till I land a new role.

Actually, correcting the terminology. My Limited company has no contracts to fufil and therefore it will not be able to pay me a salary / dividend once the current funds run dry. Id like to optimise these current funds, hence the original question. Feeding my family takes priority.

[Chaz]

Unemployed?? Really??

Well, yes. Ive just started to contract and the company Im contracting to has put a freeze on IT spend. My role has been cut. So as Ive not been doing this for very long and been a perm until now (with little fallback monies), Im a bit stuck.

So hoping I will have something fairly quickly, but uncertain till I land a new role.

[northernladuk]

A dividend and salary will be taxed. Technically I will be unemployed from next week Thursday so just looking at ways to ensure I can feed my family until I get something else.

Unemployed?? Really??

[Chaz]

So why not simply expense it at cost?

Using a market value may be technically correct but reimbursement with receipts is simpler, may better stand scrutiny, and/or attract less attention in the first place (at a guess).



Not sure I follow the logic there. If the company can afford to buy the machine from you then what's wrong with declaring a dividend, salary, or even a loan?



I think there needs to be a clear intent of business venture, e.g. supported by sales, even at a loss.

Fair enough. I dont have a receipt for the ebay purchase but I have the purchase record as it was done via ebay.

A dividend and salary will be taxed. Technically I will be unemployed from next week Thursday so just looking at ways to ensure I can feed my family until I get something else.

Perhaps a loan is an option, I dont know (hence posting and asking).

I can show intent, I have previously traded (turned over £80K a few years ago) and starting with something similar again. I can demonstrate parts made for motorcycles and where I will be selling them (will get my old ecommerce site up again).

Thanks for the input.

[Contreras]

The machine cost me £1900 + transport cost and I have sunk another £3ish K into it, all costs that I have receipts for so I should be able to justify the price.

So why not simply expense it at cost?

Using a market value may be technically correct but reimbursement with receipts is simpler, may better stand scrutiny, and/or attract less attention in the first place (at a guess).

My IT contract has come to a sudden unexpected stop and whilst I am hopeful I can find something quick, I may need to release cash quickly, so this is handy.

Not sure I follow the logic there. If the company can afford to buy the machine from you then what's wrong with declaring a dividend, salary, or even a loan?

Whilst it is mainly a 'hobby' thing, it could become a viable business.

I think there needs to be a clear intent of business venture, e.g. supported by sales, even at a loss.

[Chaz]

So I spoke to my IT Limited Company Accountant as a 'what do you think'. His view is that it is reasonable at 'fair market rate'.

The machine cost me £1900 + transport cost and I have sunk another £3ish K into it, all costs that I have receipts for so I should be able to justify the price. The sale was on ebay, so the 'value' there is very much based on what someone is willing to pay. Typically these machines go for £2500ish before they get modernised. Ive modernised mine, hence the extra spend.

My IT contract has come to a sudden unexpected stop and whilst I am hopeful I can find something quick, I may need to release cash quickly, so this is handy. Whilst it is mainly a 'hobby' thing, it could become a viable business.

[TykeMerc]

I agree with the others the logic looks sound. The basis for a challenge would be the sale price so having evidence from a couple of sources that the price is in line or cheaper than what you could have bought the kit on the open market would be wise.
As to the "funding a hobby" comment, that's always a risk, but many people have turned their hobby into a viable business, it's an argument that's winnable if you're sensible.