Page 24 - PWM_DECEMBER2022 EBook

BETTER BUSINESS

Incorporate

in haste

Company tax law can trip up many a business and
its owners, especially when the rules around own-
ing and running a company are not properly under-
stood, by Adam Bernstein

S Thornley is that of asset transfer.
Transfer of assets
electing the appropriate
business structure is an
The second cause for concern for
important decision and it
is not uncommon for a
Here she talks about the decisions
business to start as either a
sole trader, owned and
regarding assets of an existing busi-
operated by one person, or a partner- that must be taken on incorporation
ness that are to be transferred to the
ship where there are two or more new company. She warns that “the
people, before incorporating into a transfer of assets such as property,
company via the creation of a new plant and machinery can all have tax
legal entity to which an existing busi- consequences. There are reliefs and
ness can be transferred. elections available to mitigate the tax
So, to understand where owners costs of incorporation, but certain
go wrong and where they make conditions will need to be met.”
expensive mistakes, Printweek Thornley says that “particular care
sought the advice of two accountants needs to be taken with assets which
for their top five causes for concern. are used both in the business and per-
Helen Thornley, technical officer sonally, and also with land and prop-
at the Association of Taxation erty” and gives an example: a
Technicians director’s car. She explains that “if a Scotland and Wales) and Capital Gains Tax. She adds – and cautions – that
director transfers their vehicle to the “the property will also form part of the company’s assets in the event of a
A separate entity
company as part of the incorporation claim against the company. But if the property is kept out of the company –
Helen Thornley begins by tackling or gets the company to buy a car which may allow for the charging of rent and help to protect it from claims
the misuse of company assets and which they can use privately, then a against the company as well as being simpler – that could reduce the availa-
makes the point that in being a sepa- benefit in kind will arise which is tax- bility of Business Property Relief (BPR) in the future and claims for tax
rate legal entity, a company needs its able on them. This is why it is often reliefs on future sales could be affected”. BPR is a very valuable relief which
own bank account and the funds in simpler and more cost-effective for a can exempt up to 100% of the value of qualifying assets from inheritance
that account will belong to the com- director to keep their car and recover tax.
pany. She says that “a company is business mileage at the approved Overdrawn directors’ loan account
owned by the shareholders and run mileage rates, although this does
by directors, although in a small busi- require them to keep records of their The third mantrap awaiting directors outlined by Thornley follows from
ness these are often the same peo- business mileage”. failing to keep company and personal expenditure separate as it can lead to
ple”. Even so, she reminds that “the And then there’s the question of an overdrawn director’s loan account. “If this is not spotted early there will
assets of a company belong to the whether or not to transfer property be interest and penalties to pay,” Thornley comments.
In overview, if a director has put money or assets into the company then
company, and director-shareholders such as trading premises into the the company owes the director and it can, when there are funds available,
can’t use the company account as company which Thornley says “is
their personal piggy bank, even if also a big decision with a lot of com- repay them. The problem arises, as Thornley tells, where a director draws
they own 100% of the shares.” peting factors to consider”. more money out of the company than the company owes them, which is
So, if directors want access to cash If the decision is taken to transfer effectively treated as a loan to the director: “If this loan is not repaid within
held by the company, then they will in, then Thornley says that there will nine months of the company’s year-end, the company must pay what is
effectively a penalty charge of 32.5% of the amount overdrawn at the year-
need to pay themselves a salary or be upfront costs including fees for end to HMRC.”
vote dividends, both of which will transferring any mortgage to the The net effect is that either the director will need to transfer money (or
have personal tax consequences for company, and taxes such as Stamp assets) back to the company or vote themselves more dividends or salary –
the individual. Duty Land Tax (or LBTT/LTT in

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