How to transfer your personal assets to your limited company

When starting a business, you may want to transfer assets that you own in your personal name to your limited company.

This transfer will help reduce corporation tax in the company’s first year of trading. Common examples of assets that contractors transfer include computer equipment such as laptops, tablets, desktop computers, and office equipment/furniture such as printers, desks and chairs.

Transferring bigger assets, such as cars, is less common because there are often additional considerations related to ‘benefit in kind’ and National Insurance taxes, as I will explain, writes Greg Timson ACCA, chief accountant at inniAccounts.

Finding and using ‘market value’

Transferring personal assets is a straightforward process, as long as you take a pragmatic view on the value of the items.

For instance, if the assets have been owned for some time before the business was started and you have personally used them, then they should be transferred to the business at the ‘market rate’ on the day of transfer, rather than at the price that was paid for them.

The market rate or value should be based on the age and condition of the asset, along with the specification. An easy way to obtain a value is by researching the second hand market. Websites like eBay are a good place to start.

If the asset was purchased specifically for business use, then an exception can be made and the full cost of the item can be claimed.

To help show this properly, the asset should have been purchased within a few weeks before incorporation; if it’s longer than this -- it would be difficult to prove the asset hasn’t been previously used for personal purposes.

Record-keeping when transferring assets to your limited company

In terms of record keeping the asset-transfer, you’ll need to prepare an invoice from yourself to the company.

A simple invoice using a Word processor is fine. It will need to include your name, address, who the invoice is to (your limited company), invoice date, the items and the sale price i.e. the value the company will pay for them.

You should also keep the original purchase invoices in your company records as evidence that you owned them personally.

Once this has been done, the company can then pay you for the items on the invoice.

Understanding the tax of asset-transfer

While the purchase of assets does not reduce company profits, it does qualify for tax relief. You can utilise the Annual Investment Allowance (AIA), which means you receive corporation tax relief (currently 19%) on the cost of the assets.

As an example, if you transfer computer equipment with a total market value of £3,000, your company’s corporation tax bill will be reduced by £570, and you would receive £3,000 tax free from your company.

Once the assets are transferred, any personal use will need to be insignificant otherwise there can be ‘benefit in kind’ implications.

One last point to note, is that as an individual you are prohibited from charging VAT on the assets, so no VAT can be reclaimed from HMRC.

What about transferring a car to your contractor company?

Although cars owned personally can be transferred to the company, it is often not worthwhile to make such a transfer.

Firstly, the corporation tax relief (mentioned above) doesn’t apply to cars and typically the rates that can be claimed are much lower. As the company would be purchasing the car second-hand, the rates would reduce further, even if the car is an electric one.

Secondly, as the car would likely be available for personal use there would be a personal ‘benefit in kind’ tax charge as well as a Class 1A National Insurance charge. This is calculated at a percentage of the official list price of the car (not the value it’s transferred to the company at), based on the CO2 emissions and fuel type.

In addition, if the company pays for any fuel used privately then a fuel benefit charge will apply.

Final considerations

Finally, if there is outstanding finance on the vehicle, the finance provider would likely require the balance to be paid if the car is being sold to your limited company.

If you are considering transferring larger assets to the company such as a car, or you are in any doubt about transferring assets generally, then it’s best to take advice from a contractor accountant beforehand. They can help you navigate the various tax implications and ensure everything is accounted for in your bookkeeping.