When you incorporate your limited company, you may have assets which you want to transfer into it. But how do you go about this, and what tax rules should you be aware of?
In this guide, Kerry Newman, Head of SG Accounting explains how asset transfers work in practice.
Reasons to transfer assets
Transferring assets can help your company obtain tax relief on items it needs to trade, particularly in its early stages. The most common types of assets include computers and office equipment.
It can also avoid the need for your company to purchase the same items again from scratch.
How to value your assets
To begin with, you’ll need to use the market value when valuing your assets.
The process of transferring assets is fairly simple, so long as you take a realistic approach to how much they’re worth.
For example, if you transfer older assets to your company, you should use their market value on the date of transfer, rather than the original purchase price.
The market rate should take into account the asset’s age, condition, and specification. You can research the second-hand market online to help support your valuation.
The longer the gap between purchase and your company’s incorporation, the harder it is to justify a higher value.
However, you may still be able to claim the cost of pre-incorporation expenses for up to seven years, provided the costs meet HMRC’s criteria.
If you purchased the asset wholly for business use, you can usually expect your company to claim tax relief on the full market value at the point of transfer.
Records you need to keep when you transfer assets
Before you transfer the asset, you should create an invoice from yourself to your company. Your accountant can provide a template for this.
The document should include:
- Your name
- Your address
- Your limited company’s name
- The date of the invoice
- A clear description of the assets being transferred
- The agreed market value
Keep any original purchase invoices as evidence that you owned the assets personally beforehand.
Once the invoice is raised, your company can reimburse you for the agreed value. In practice, this is often recorded via your director’s loan account rather than an immediate cash payment.
How the asset transfer works in practice
The purchase of business assets qualifies for tax relief, but it does not reduce your company’s profits directly.
Instead, the tax treatment is handled through a system of capital allowances.
In many cases, you can claim relief under the Annual Investment Allowance (AIA), which allows the full cost of qualifying assets to be deducted against taxable profits.
For example, if you transfer a PC to your company with a market value of £2,000, your company can typically claim £2,000 of capital allowances. At the starting 19% Corporation Tax rate, this could reduce the tax bill by £380.
To avoid benefit-in-kind issues, any personal use of transferred assets should be insignificant or incidental after the transfer.
Can you transfer a car into company ownership?
You can transfer a vehicle you personally own into your limited company, but it is often not tax efficient.
Corporation Tax relief for cars is restricted and depends on CO2 emissions. In many cases, the relief is spread over several years rather than given upfront.
If the car has outstanding finance, you will normally need to settle this first. A finance agreement cannot simply be transferred to your company, as it is a separate legal entity.
If the company provides the car for personal use, benefit-in-kind (BiK) charges will apply.
Each year:
- The company pays Class 1A National Insurance on the benefit
- You pay income tax on the benefit through PAYE
The value of the benefit depends on the car’s list price, CO2 emissions, and fuel type. If fuel is also provided, an additional fuel benefit charge applies.
In many cases, contractors are better off keeping the car personally and claiming mileage instead.
See our guide to company car tax for a detailed breakdown.
Seek professional advice before you transfer larger assets
As you can see, there are several factors to consider before transferring assets into your limited company.
For higher-value items, or anything with mixed personal and business use, it is worth taking advice before proceeding.
A qualified accountant can help ensure the valuation is reasonable, the paperwork is correct, and the tax treatment is handled properly.