Capital Expenditure or Business Expense

[Frog Morton]

Setting up new Ltd co and have been told that I can sell my personal office furniture and PC equipment to the Company. Seeking some clarity on the following: -

i. is this common practice/legal
ii. would it be classed as capital expenditure or a business expense
ii. what would the tax treatment be

Cheers

[malvolio]

It's capital. Learn the difference.

It's an obvious and common way to release money from the company until you have an established cash flow. Don't make a habit of it though.

It's entirely legal provided you sell at something close to actual market value.

If you don't understand the tax treatment, (a) ask your accountant to explain and please don't tell me you haven't got one, (b) you haven't done your research and you need to understand such things (not in minute detail, of course) since as a director it's your legal responsibility to keep the books straight and (c) it's company expenditure offset against CT on one side and non-taxable income on the other (selling your own goods is non-taxable as long as it's not a regular trade).

[xoggoth]

i No idea
ii Capital. Definition is pretty much common sense. Usually anything that is not consumed and expected to last a year or more is capital. In practice also of significant value, it is normal and accepted to treat small capital items as business expenditure.
iii Capital allowances, you get a % of value for 1st year then a lower % for later years, deduct from profit to reduce CT. Add accounts depreciation back in first.

PS You can also claim capital allowances on your own stuff used by the business via your tax return, not essential to sell to company.

[Platypus]

Setting up new Ltd co and have been told that I can sell my personal office furniture and PC equipment to the Company. Seeking some clarity on the following: -

i. is this common practice/legal
ii. would it be classed as capital expenditure or a business expense
ii. what would the tax treatment be

Cheers

i. YES, but do charge realistic prices, e.g. don't expect the tax man to be pleased if he discovers YourCo purchased a desk for £1000 which you personally had previously purchased for £100.

otherwise, what they said.

[malvolio]

i. YES, but do charge realistic prices, e.g. don't expect the tax man to be pleased if he discovers YourCo purchased a desk for £1000 which you personally had previously purchased for £100.

otherwise, what they said.

I said that too, didn't I...

[lambrini_socialist]

It's capital. Learn the difference.

It's an obvious and common way to release money from the company until you have an established cash flow.

sorry to be dim, could someone elaborate on how this is so? someone else explained this to me recently but i understood it as meaning i get a lower tax bill at the end of the year (i.e. there's no upfront benefit).

[malvolio]

Jeez, these are basics: go read the guides...

If YourCo buys something, the cost is offset against its profits (duh...). You pay Corporation Tax on Profits, so buying things saves tax. Make no profit at all and you pay no tax, but unless you're clever you won't have any money either, so the idea is to get the balance right.

If the thing has a value after you've bought it (like a PC or a power station) you can depreciate it. That means you effectively charge the drop in value agaisnt overall profits and again save Corporation tax. Becuase it has a value it's called an Asset and becuse you've bought it out of company funds it's a Capital Asset.

If it hasn't got a value after purchase, like a Rail ticket or a flight to Bali, it's an Expense. It still reduces your profit and hence your CT for that financial year, but you can't depreciate it.

There are other variants like offsetting losses against previous year's profits and reclaiming CT, but let's not go there until you grasp the difference between Capital Spend and Expenses.


And like I said, please don't tell me you haven't got an accountant.

[lambrini_socialist]

much obliged. yep, i've got an accountant, but it's early days yet...