How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4181
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

My wife and I operate a small printing business as a partnership.

Customer Question

My wife and I operate a small printing business as a partnership. We are thinking of going limited. Our business bank account is currently in the black (not in overdraft), we have no loans or any other finance running, and we own outright all of our machinery and equipment.
If we become Limited, what happens to our machinery and equipment? do we sell it to the limited company? does this incur personal tax on ourselves? Do we lease it out...again will this count as tax against us? or do we simply give it free of charge to the limited company?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

There are a few solutions here, but most have tax consequences. As you are probably aware plant and machinery for tax purposes pass through the capital allowance system for relief from Income Tax, year by year. Depending on the balance in the capital allowance account will depend whether, for tax purposes, you personally come out with a capital profit or a capital loss. As a capital loss can only be carried forward, or back one year, you have to decide which is the most tax efficient way to leave your capital allowance account tax neutral at the final close of your business. This is the problem you face if you sell or donate to the new company. If of course the capital allowance account is at zero then give the property to the new company with impunity.

An alternative is to stay in self employed business in a small way by renting out the equipment to the new company. Careful juggling of the rental against the capital allowance available to offset income could leave you personally with an annual zero tax position.

Whichever way you turn you may be taxed, albeit probably minimally. Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes!
Customer: replied 3 years ago.

Ok thanks for that, but if we donate everything to the 'new' limited company, does that mean that the equipment effectively has no value as it has not been purchased?

Expert:  bigduckontax replied 3 years ago.
It has been acquired by the new company at zero cost. Thus there is no capital allowance account to be opened, makes life easier.

However there may be an effect on your personal taxation position as I have explained. Of course it may be very small.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 3 years ago.
Thank you for your support.