Selling to your company
You’ve just bought a brand new 40-inch LCD television for your home. But what do you do with the old one? Is there a way to sell this to the company in order to get some cash out tax-free?
Personal assets
No longer used. You may have some redundant office equipment or furniture at home. Or it could be that you’ve just replaced the TV with the latest LCD model or finally bought your spouse a new car. Whatever it is, if the company can make use of it, e.g. the old TV would be ideal in the staff rest area or the spouse’s old car would make the perfect pool vehicle for staff to use on business trips, then it seems pointless for the company to go out and buy new ones. Instead why not sell these items to the company? But is it worth it?
Tax advantage. Yes! Suppose you put equipment worth £2,000 into the company. This means you can draw £2,000 out of the company tax-free. If you’re a higher rate taxpayer, it would cost you £500 (£2,000 x 25%) in tax to take the equivalent as a dividend (and even more if you took it as a bonus). Plus you’ve saved the hassle and fees of trying to sell the items privately. But you need to get the paperwork right to avoid a challenge.
Paperwork
Invoice. Whenever you sell an asset to the company, you should always make out an invoice from you to the company. It should list the items you’re selling together with the price for each one.
What price? As the director of the company, the Taxman likes to think you have some influence over its decisions, meaning he gets to tax transactions between you and the company under the so-called “connected persons” rule. This means, for tax purposes, all transactions between connected persons are deemed to occur at market value even if no money changes hands. So in theory, although you can charge the company whatever you like, if you charge more than market value, you could be taxed on the difference as if it were salary.
Tip 1. Look on eBay etc. and in the local press to get an idea on second-hand values. Make sure you keep a copy of any paperwork that supports your valuation in case the Taxman challenges it.
Tip 2. If you don’t need the money straightaway, you can leave the amount owing to you from the sale of the assets to the company as a loan. The company will credit the amount owing to your director’s loan account, and you will be able to draw the money owed when cash is available.
Tip 3. Get the company to pay you interest on the outstanding invoice. The company should pay a commercial rate of interest on the invoice amount. The Late Payment of Commercial Debts (Interest) Act 1998 charges 8% over the bank base rate (4.75%) where invoices are outstanding for more than 30 days (also see the article on page 5). So you’d certainly be justified in charging, say 5% or 6% over the bank base rate. To cover yourself, put this in your terms.
Your company
Your company can claim a tax deduction for the cost of the assets. For most assets except cars, you can claim 50% of the market value of the asset in the first year and 25% of the remaining balance in subsequent years (for cars it’s just 25% each year).
Accounts. As a director of the company, you are known as a related party. All significant transactions with related parties need to be shown in a note in the company’s annual accounts. So make sure your accountant is aware of the sale.
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