When you start a business, it’s natural to think about transferring your personal assets to your limited company. Such a transfer of assets is beneficial in reducing corporation tax liability in the first trading year of the company. Contractors commonly transfer assets like computer equipment—including laptops, tablets, and desktop computers—as well as office equipment and furniture such as printers, desks, and chairs. On the other hand, transferring larger assets, like vehicles, is less common due to additional considerations such as ‘benefit in kind’ implications and National Insurance tax liabilities.
As a reliable accountancy firm, we will guide you through what types of assets can be transferred to a limited company, how the process works, and the key tax and legal implications you should be aware of before making the move.
Putting a Price on It: Understanding ‘Market Value’
Transferring personal assets into a limited company is generally a straightforward process, provided that a reasonable and justifiable approach is taken to valuing the assets.
Where assets have been personally owned and used prior to the commencement of business activity, they should be introduced to the company at their market value on the date of transfer, rather than at their original purchase cost. This ensures that the company records reflect a fair and accurate value for accounting and tax purposes.
Market value should be determined based on factors such as the asset’s age, condition, and technical specification. One practical method of arriving at this value is by referencing the second-hand market—online platforms like eBay can provide useful benchmarks for similar items.
In contrast, where an asset was purchased specifically for use in the business, it may be appropriate to transfer it at its full cost. However, to support this treatment, the asset should ideally have been acquired shortly before incorporation. If there is a significant time gap, it may be difficult to demonstrate that the asset was not previously used for personal purposes, which could lead to tax complications.
Documenting Asset Transfers to Your Limited Company
When transferring assets to your limited company, it’s important to ensure that the transaction is properly documented for both accounting and tax purposes.
You’ll need to prepare an invoice from you to the company. This doesn’t need to be created using specialist software—a standard Word document will suffice, provided it includes the necessary details:
- Your name and address (as the seller)
- The company’s name and address (as the buyer)
- The invoice date
- A description of the items being transferred
- The agreed sale price (i.e., the market value or cost, depending on the nature of the asset)
In addition, retain the original purchase receipts or invoices in the company’s records to demonstrate that you originally acquired the assets.
Once the invoice has been issued and recorded, the company can make payment to you for the items, completing the transfer.
Understanding the Tax Implications of Asset Transfers
Although the purchase of assets does not directly reduce a company’s taxable profits, it may still qualify for tax relief through the Annual Investment Allowance (AIA). Under AIA, the company can claim corporation tax relief—currently at 19%—on the full value of qualifying assets.
For example, if you transfer computer equipment with a market value of £5,000, your company may be able to claim £950 in corporation tax relief. At the same time, you, as the individual transferring the assets, can receive £5,000 from the company tax-free, assuming the asset transfer is correctly documented and valued.
It’s important to note that once the assets are transferred to the company, any personal use must be minimal. If the personal use is more than incidental, it may give rise to a benefit in kind, which could result into additional tax and National Insurance liabilities.
Finally, individuals are not permitted to charge VAT on the transfer of assets to their own company. As a result, the company cannot reclaim input VAT on these transfers.
What about transferring the Car to Your Limited Company?
While it is possible to transfer a personally owned car to your limited company, in most cases it is not financially advantageous to do so.
Firstly, the corporation tax relief available on most business assets does not apply to cars. Moreover, any capital allowances that can be claimed tend to be significantly lower, particularly for second-hand vehicles. This applies even if the car is electric, where relief rates are typically more favourable but still limited.
Secondly, since the vehicle is likely to be used for private purposes, a benefit-in-kind (BIK) tax charge will arise. This tax is calculated based on a percentage of the car’s official list price (rather than the market value at transfer), with the rate determined by the vehicle’s CO2 emissions and fuel type. In addition to the BIK tax, the company will also incur a Class 1A National Insurance charge on the same amount.
Furthermore, if the company covers any private fuel costs, a fuel benefit charge will also apply, further increasing the tax liability associated with the vehicle.
Get Expert Advice on Asset Transfers from Cangaf Accountants in the UK
If your vehicle is still under finance, the lender will generally require you to clear the outstanding amount before transferring ownership to your limited company.
Transferring significant assets, such as a car, can be complex and may involve various tax considerations. If you’re unsure about any part of the process, it’s wise to consult with an accountant who can provide tailored advice. This will help you manage the tax effects properly and ensure your records remain accurate.
For reliable support and expert advice on asset transfers and contractor accounting, reach out to Cangaf Ltd. Accountants. Our specialists are here to help you make informed decisions and easily maintain compliance.