Can I sell my business assets to myself?
The simple answer to a question that many limited company contractors might be asking themselves right now, ‘Can I sell my business assets to myself?’ is a reassuring, yes.
But as with many things PSC owners ‘can’ do, technically in the eyes of HMRC, one needs to employ care and fully consider the implications, writes Chris James, head of limited company accounting at Workwell.
Ceasing, selling, invoicing
Often, for a typical IT contractor, the question of taking assets out of the company, rather than introducing assets to the company, will occur only when the business is looking to cease trade.
In these circumstances, assuming a solvent liquidation is taking place, then the assets can be ‘sold’ to the contractor for a reasonable value, and an invoice should be raised reflecting this in the books of the company. Although the business is usually ceasing around this time, this is still technically a sale by the company and so transactions need to be recorded to reflect this. Usually in the final set of accounts.
Make sure it’s reasonable
The value used for the sale should be ‘reasonable’, whereby it considers and reflects the market value of the items being sold. In reality, most assets will probably be of a near negligible value, but it will be sensible to attribute some nominal value to them on the invoice. You should remember that this will mean the company has made a sale, and potentially a taxable profit.
In addition, you will have to ‘pay’ this sales invoice, either by simple payment, or by some adjustment to the amounts payable to you on winding up. If the value is artificially low, HMRC may seek to argue that the difference in value is a ‘benefit in kind’-type arrangement, and seek tax as a result. However, this is not a common occurrence unless high value assets are involved.
Carrying Value and Balancing Charge
It is likely that for assets the company has owned for some time, or where generous capital allowances have been available, there will be no ‘carrying value’ in the company tax computation for the assets being disposed, and so the sale price will effectively be entirely profit, taxable currently at 19% (but scheduled to increase soon).
If sales in the future are considered, it’s worth bearing in mind that the rate of corporation tax relief obtained on the purchase of the asset may be significantly less than the rate applied to the ‘balancing charge’ when the sale is accounted for. Exceptionally, a high value asset with a high residual value could bring negative impacts due to this change in tax rate, depending on the purchase and sale dates. However, given the time between the two events and the common lowering in asset value over that period, that is unlikely to change behaviour in most cases.
Next, bear in mind that VAT is important in two ways. If the business is continuing to trade, and selling an asset to the contractor, then VAT should be charged on this sale as normal. However, if you are in the position where you are closing the business, you may be tempted to deregister from VAT and then make the sale. Be aware, HMRC is wise to this and have provisions to require you to make a ‘deemed supply’ of the assets (and stocks if applicable), that you have on-hand as you deregister for VAT, and pay VAT on them. So you can’t avoid paying over this VAT on the assets.
However, unless the total value of these tangible assets and stocks is over £6,000 including VAT (so £5,000 plus VAT) then an exemption applies and no ‘deemed supply’ is needed. Also, if no VAT was paid on acquisition of the assets, the assets can be excluded from the ‘deemed’ calculation.
Getting guidance (or maybe not)
If you find yourself in a position where you are personally using a high value asset that is owned by the company, instead of you, you may need to transfer the asset in the same way. Bearing a high cost as a one-off may be preferable to a repeated expensive ‘benefit in kind’ charge. This will need careful modelling. And frankly, my best advice is – don’t end up in this position in the first place if you can!
Finally, should there be outstanding finance on the assets being considered for sale to yourself, then they will need to be sorted out with the finance provider, depending on the terms of the arrangement. Where unusual assets (such as intangibles or very high value assets) are involved, or complex VAT positions are involved (such as partial exemptions or group transfers), detailed advice should be sought from a contractor accountant. We recommend you always check with your trusted tax adviser in almost all cases. But in the majority of situations when selling your company’s assets to yourself as an individual, a properly recorded sale at a reasonable value, with due regard for VAT, should be the only two fundamentals that are needed – at least in the typical contractor’s circumstances.