Buying Co. assets - any limitations on what I can buy? Buying Co. assets - any limitations on what I can buy?
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  1. #1

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    Default Buying Co. assets - any limitations on what I can buy?

    I was reading this post that was talking about the difference between Assets and Expenses.

    Definition of an asset: (from Cojak)
    an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

    It got me thinking. I have spare cash in the company, and I would like to buy some assets that I can get the use of, that may/ may not appreciate in future. In particular, I would like to buy a grand piano (it costs more than a grand by the way.. ). When I sell the piano in future, if I make a small loss it will still be cheaper than the cost of renting an instrument (especially taking into account the tax relief on the asset purchase, and being able to run any service, storage or transportation costs through the business).

    On the surface this sounds silly- an IT services company buying musical instruments. But I understand that service companies can already buy assets like works of art, stamp collections, or vintage wine (and you could argue these are equally silly).

    So what restrictions are there (if any) on purchasing physical asset classes through a company, where the company sales are generated in business activities completely unrelated to the asset class?

    Cheers,
    Lecyclist

  2. #2

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    Only allowable if you're a pianist.

  3. #3

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    There are no restrictions on what you can buy.

    There may or may not be restrictions on whether the cost of the item can be offset against tax, though.
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  4. #4

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    Assets are purchased to be used in the business, what you seem to be talking about are investments, however any personal use would attract a BIK and would therefore not be recommended.

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    Remember these companies hang their art in their offices. You'll be displaying it in your home. You've no chance of arguing there is no personal use.
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    Quote Originally Posted by northernladuk View Post
    Remember these companies hang their art in their offices. You'll be displaying it in your home. You've no chance of arguing there is no personal use.
    If the taxman heard how bad I play, it would be hard for him to prove I was using it regularly.

    I was considering the purpose of the piano from the company point of view was not to use it as an ornament in the office (although the piano will be based at a second address which is listed as my company office, which is not my primary residential address.. but this is not an angle I am planning to pursue).

    I would be treating it as an investment asset, in the same way someone buying vintage wine or stamps would not necessarily be displaying it in their office. The company would be buying a collectable piano with the intention of selling it at a profit later. The questions I can imagine being asked are :

    1. Why would the company buy a piano? A: It seemed to be a good investment decision buying a collectable asset at a good price, with some potential for selling at a future profit.
    2. Does your company make a habit of poor asset purchases whose sole purpose is to reduce your corporation tax? A: No, as a percentage of total sales asset purchases are small.

    If this still sounds too far fetched, could someone explain how buying stamps or vintage wine (which are privately stored without any public viewing) are acceptable as an investment class?

    Cheers,
    Lecyclist

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    You can buy assets but they have to come out of your personal income if they aren't related to your business needs.

    I've worked for different IT firms and none of them have had pianos in their UK offices.

    I've heard stories about CEOs of IT companies having stuff like art in their offices but these people weren't based in the UK or the countries in Europe that score highly on the non corruption index.
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  8. #8

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    Investment purchases would not reduce your corporation tax liability as they will be held at their value in the accounts.

    Tax would be payable on any profit made when sold or tax relief on loses when sold.

  9. #9

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    Default Alternative Investments

    A grand piano could be a good investment. Older ones have appreciated in value considerably and there is a good global market for these. As do some stamps/wines/art.
    However buying via your business may not be the best way in all circumstances. Chattels, like wine, do not attract capital gains tax. Therefore you could be better off investing personally using tax-paid monies. Using company funds would mean a taxable profit upon sale (or set against profits if a loss) and you would incur a personal tax liability on draw-down of any funds as usual. Plus your company does not get a CGT allowance.

    Also get advice and research on what to buy: There are several books on Amazon.

    The way to potentially make money on wines is buy the better/best wines "en premier". Store them "in bond" to avoid duty and VAT. Once a wine doubles in price sell half of it and reinvest in a new vintage. Worse case scenario for this is you drink great wine for free Best case - Tax free investment.

    So my advice is think this through before taking a plunge and if it is likely to make a profit buy personally and if it will lose money use the business.

    PS My company used to rent a grand piano for my showroom and it was allowable expense and no asset on the books (just another way to tinkle the ivories)
    Last edited by pmasoft; 2nd April 2015 at 17:32.

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    Question back to you is does your business model actually work? There is a question over tax relief and there will be CT on the profit and then what's left will be taxed when you withdraw it. Does this still seem worth the risk when your returns IF the price goes up are eroded? What profit are your expecting in your pocket at the end? Compare that to a model where you just stick the cash in a higher interest business account like Aldermore or someone.

    Don't forget to insure the item as well and possible storage costs if you want to avoid the BiK. You don't need to play the piano for it to incur BiK. It just has to be available. Same argument as a company car sitting on your drive.

    Oh yeah and while you own it you can't shut your company down when an opportunity arises and claim the tax benefits that can be had for doing so.

    These factors and probably more are the reasons no one else does this. The fact they don't also speaks volumes.
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