Reply to: pre set up -purchased assets for company use -sell to company ?

[Martin at NixonWilliams]

If the asset was purchased for the setting up of the business the full cost can be deducted whether the asset has kept its value or not.

Using a fair market value is only appropriate if the asset has been used for another purpose prior to it being used in the business.

A price above what was paid is out of the question of course.

[VectraMan]

I can't see that there is anything wrong with buying (say) a new PC and then incorporating a company a month later and putting the cost of the PC through the company just like you would with any other expense that you pay for personally.

I did exactly this with a laptop, reclaimed the VAT too, as advised by an accountant.

It's a bit odd that a company can have expenses before it even exists, but it can.

[Clare@InTouch]

I can't see that there is anything wrong with buying (say) a new PC and then incorporating a company a month later and putting the cost of the PC through the company just like you would with any other expense that you pay for personally.

If the time frame was several months and the asset was used then perhaps there would be some depreciation on the value though.

I think what Claire is saying that if your company buys an asset off you at more than the fair market value (or more than you paid for it) then it's going to raise eyebrows.

Exactly that, thanks Wanderer

[Wanderer]

If those are the rules then so be it of course. Though personally if I leapt out and bought a PC and assorted software just prior to incorporation for the purpose of using within the enterprise I can;t really see where the profit element comes from.

I can't see that there is anything wrong with buying (say) a new PC and then incorporating a company a month later and putting the cost of the PC through the company just like you would with any other expense that you pay for personally.

If the time frame was several months and the asset was used then perhaps there would be some depreciation on the value though.

I think what Claire is saying that if your company buys an asset off you at more than the fair market value (or more than you paid for it) then it's going to raise eyebrows.

[ASB]

Because otherwise you're making an "unfair" profit as a result of your connection with the company, and HMRC would want to tax you on it. Selling at market value means it's a simple sale of a personal chattel and therefore tax exempt.

It's not the same as buying a computer for £4k when one for £500 would do or travelling first class when coach would do - that's still ok as it's allowable overall, and the price is genuine.

The same reason really, but in reverse, that your company cannot buy an asset for £10,000 and sell it to you for £1. Well it could, but you'd be taxed on the real value as a benefit in kind.

If those are the rules then so be it of course. Though personally if I leapt out and bought a PC and assorted software just prior to incorporation for the purpose of using within the enterprise I can;t really see where the profit element comes from.

Of course, if I had gone out, bought a PC etc and used it for a considerable degree of personal use then yes, that is mine. I would in that case definitely be selling a second hand pc. So should be at a fair value. And the VAT wouldn't be reclaimable either of course.

[malvolio]

Perhaps the point wasn't clear. Why is this treated as selling kit to the company?

There's a difference between transferring personal assets, and paying for a business expense out of pocket and then claiming the expense back.

I don't doubt what Clare said. I'm sure there are rules for accounting pre-incorporation expenses and maybe this is something to do with revenue vs. capital expenses, or maybe it's simply cautious advice based on experience of contractors trying to claim everything including the kitchen sink!

The challenge is proving that the kit was bought exclusively for the use of the company when it eventually came into existence. It is very easy for HMRC to argue that the "wholly and exclusively" condition wasn't met if the kit was ever unpacked, much less turned on, making it a personal purchase which in turn means you have to sell it on to YourCo at current market value (for example, excluding the original VAT element that you can't recharge).

There are always exceptions, and Hector is probably fairly happy with treating it as a set up cost if the kit was bought at much the same time as incorporation, bank account creation and so on. As always you have to apply the test of what is "reasonable".

[Contreras]

It's just a bit of common sense. If you sell kit to your company ...

Perhaps the point wasn't clear. Why is this treated as selling kit to the company?

There's a difference between transferring personal assets, and paying for a business expense out of pocket and then claiming the expense back.

I don't doubt what Clare said. I'm sure there are rules for accounting pre-incorporation expenses and maybe this is something to do with revenue vs. capital expenses, or maybe it's simply cautious advice based on experience of contractors trying to claim everything including the kitchen sink!

[northernladuk]

Fair enough if the kit was originally for personal use, but the OP says it was purchased for the business prior to setting up the company. If the receipts are at hand then can the full cost not be put through the books?

If not then the market value of a second hand PC + software might not be worth bothering with.

Of course it can as it's market value hasn't gone down in the short timespan between purchase and incorporation. It's just a bit of common sense. If you sell kit to your company at over market price you will be gaining benefit from the transaction which HMRC will be very interested in. If you keep it reasonable as Clare says then HMRC can't argue it. You can't put through a 2k PC you bought 2 years ago, it just isn't worth it.

You are quite correct, it might not be worth bothering with in some cases. I had a two year old laptop when I started contracting and didn't bother putting it or my ancient printer through the books as they were worth nothing.

Remember your company and you are legally separate entities so just treat it like a transaction for the kit from a stranger.

[Contreras]

Because otherwise you're making an "unfair" profit as a result of your connection with the company, and HMRC would want to tax you on it. Selling at market value means it's a simple sale of a personal chattel and therefore tax exempt.

It's not the same as buying a computer for £4k when one for £500 would do or travelling first class when coach would do - that's still ok as it's allowable overall, and the price is genuine.

The same reason really, but in reverse, that your company cannot buy an asset for £10,000 and sell it to you for £1. Well it could, but you'd be taxed on the real value as a benefit in kind.

Fair enough if the kit was originally for personal use, but the OP says it was purchased for the business prior to setting up the company. If the receipts are at hand then can the full cost not be put through the books?

If not then the market value of a second hand PC + software might not be worth bothering with.

[northernladuk]

Surely you don't need to actually sell them to company for market value - you can just "give" them to the company can't you?

And lose out on some tax benefits and money in your pocket above and beyond your age/divis??? Why wouldn't you?

[TheCyclingProgrammer]

Surely you don't need to actually sell them to company for market value - you can just "give" them to the company can't you?

[ThomserveBAS]

In the course of setting up my LTD I'd purchased a new HP business printer. Once incorporated (as the time between the two was minimal) my accountant advised I could just submit the original receipt for the full value. As I hadn't opted for FRVS at that time - they also reclaimed the VAT.

Your accountant will advise you on the best approach - you ultimately decide how to proceed.

[Aloha1]

thanks for your replys !

thanks again & as per the comment -im about to choose an accountant !

Regards


Al.

[Clare@InTouch]

Why must it be "reasonable market price". Surely the entire value is ok subject to them being allowable at all and timeframe being reasonable.?

Because otherwise you're making an "unfair" profit as a result of your connection with the company, and HMRC would want to tax you on it. Selling at market value means it's a simple sale of a personal chattel and therefore tax exempt.

It's not the same as buying a computer for £4k when one for £500 would do or travelling first class when coach would do - that's still ok as it's allowable overall, and the price is genuine.

The same reason really, but in reverse, that your company cannot buy an asset for £10,000 and sell it to you for £1. Well it could, but you'd be taxed on the real value as a benefit in kind.

[ASB]

Why must it be "reasonable market price". Surely the entire value is ok subject to them being allowable at all and timeframe being reasonable.?