Can I sell my business assets to myself?

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The simple answer to a question that many LLC entrepreneurs might be asking right now: “Can I sell my business assets to myself?” is a reassuring, yes.

But as with many things that PSC owners ‘can’ do, technically in the eyes of HMRC, caution should be exercised and the implications fully considered, writes Chris James, head of limited liability company accounting at Workwell.

Termination, sale, invoicing

Often, for a typical IT entrepreneur, the question of taking assets out of the business, rather than bringing assets into the business, will only arise when the business seeks to cease operations.

In these circumstances, assuming a solvent liquidation takes place, the assets can be “sold” to the contractor for a reasonable value, and an invoice must be issued reflecting this on the company’s books. Although business usually ceases around this time, it is still technically a sale by the company and transactions should therefore be recorded to reflect this. Usually in the last set of accounts.

Make sure it’s reasonable

The value used for the sale must be “reasonable”, that is, it considers and reflects the market value of the items sold. In reality, most assets are likely to be of negligible value, but it’s a good idea to give them a face value on the invoice. Remember, this means the business 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 of the sums which will be due to you upon liquidation. If the value is artificially low, HMRC may seek to argue that the difference in value is a ‘benefit in kind’ arrangement and seek taxation accordingly. However, this is not a common occurrence unless high value assets are involved.

Book value and balancing costs

It is likely that for assets which the company has owned for some time, or where generous depreciation allowances have been available, there will be no “book value” in the corporation tax calculation for assets sold, and therefore the sale price will effectively be entirely profit, taxable currently at 19% (but expected to increase soon).

If future sales are contemplated, it should be borne in mind that the rate of corporate tax relief obtained on the purchase of the asset may be significantly lower than the rate applied to the ‘balancing’ when the sale is recorded. Exceptionally, a high value asset with a high residual value could lead to negative impacts due to this change in tax rates, depending on the dates of purchase and sale. However, given the time elapsed between the two events and the common decline in asset values ​​during this period, this is unlikely to change behavior in most cases.

VAT Considerations

Next, keep in mind that VAT is important in two ways. If the company continues its commercial activities and sells an asset to the entrepreneur, VAT must be charged on this sale as usual. However, if you are in the situation where you are closing the business, you might be tempted to opt out of VAT and then proceed with the sale. Be aware that HMRC is wise and has provisions requiring you to make a ‘deemed supply’ of the assets (and inventory, if any) you have on hand when you opt out of VAT and pay VAT on them. You therefore cannot avoid paying this VAT on the assets.

However, unless the total value of these tangible assets and inventories exceeds £6,000 inclusive of VAT (thus £5,000 plus VAT), an exemption applies and no ‘deemed supply’ is necessary. Additionally, if no VAT was paid when the assets were acquired, the assets may be excluded from the “deemed” calculation.

Get advice (or maybe not)

If you find yourself in a position where you personally use a high-value asset belonging to the company, in your place, you may need to transfer the asset in the same manner. It may be better to bear a high cost all at once than to charge a costly and repeated “benefit in kind”. This will require careful modeling. And frankly, my best advice is – don’t end up in this position in the first place if you can!

Finally, if there is outstanding financing on the assets you plan to sell to yourself, then they will need to be settled with the financing provider, depending on the terms of the arrangement. When dealing with unusual assets (such as intangible or very high value assets) or complex VAT positions (such as partial exemptions or group transfers), detailed advice should be sought from an accountant subcontracting. We recommend that you always check with your trusted tax advisor in almost all cases. But in the majority of situations when selling your business assets to yourself as an individual, a properly recorded sale at a reasonable value, with due consideration for VAT, should be the only two fundamentals needed. – at least under typical entrepreneur circumstances.

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