Brain twister: I'm confused...

[LDN]

I have a second car that I bought for £8000. I do not need the car any more and so plan to sell it. However, a business I half own could buy it, as it comes in handy for work related jaunts. My business partner is my fiancé (not that that makes any difference).

Off the bat; my first thought is; have the LTD business I half own buy the car from me for £8000. But then... have I not just paid £12,000 for the car; in theory? My initial 8k plus another 4k as the business buys it (my half of the business / amount).

But the value is still in the car. So; if we were to ever sell the car, the business would get 8K - in theory, I'd be getting my 4K back and my fiancé would be getting her 4K back - but I'd never get the initial 8K that I originally bought the car for and I'd not have the car.

Whereas if I sold the car privately; I'd get my 8K for the car. The business could then go and buy a car for 8K (costing us; in theory, only 4K each, as it's half / half with partner). It will then have personally cost me 4K for an 8K car. And ditto her.

I'm not sure if I'm being dense here; but my head cannot get around this riddle. My initial thought is that; as well as the business buying the car from me for 8K, my fiancé (if all were a level playing field) would be giving me 4K from her personal account - as though we bought the car together in the first place. We then both / as a couple / sell the car to the business. Surely; that's the only way to balance this? But then... if she personally gives me 4K to buy 50% of the car - and we then sell the car for 8K to our business... she's paid 8K (in theory) for the car and so have I; 16K for an 8K car? A car we'd only ever get 8K for. Perhaps it's post New Year blues but my mind is misty...

This is not a post regarding tax implications or the like; purely a conundrum I'd like to get to the bottom of. I'm sure someone will make this look easy - but I cannot see how selling the car to my business is equal to selling it privately and then buying an 8K car... but it should be the same should it not?

[marshalla]

Before : you have a car, the business has £8k
During - you give the car to the company, the company gives you £8k.
After : you have £8k, the business has a car.

Where's the problem ?

(actually, the problem is that you are viewing the company's assets as your own personal assets, when they aren't. Consider how the situation if you were selling your car to my ltd. co. instead).

[LDN]

marshalla said:

Before : you have a car, the business has £8k
During - you give the car to the company, the company gives you £8k.
After : you have £8k, the business has a car.

Where's the problem ?

(actually, the problem is that you are viewing the company's assets as your own personal assets, when they aren't. Consider how the situation if you were selling your car to my ltd. co. instead).

But if I sold it to your LTD co; I'd not own half the car (via the business) - I'd own none of the car. Whereas this way, if the business were to sell it, I'd have 4K back as would my fiance.

I know what you mean; it's perception trickery perhaps... in simple terms, I feel like I could be paying 12K for an 8K car... my initial 8K and another 4K via my half of the business.

[Eric Mc]

Once you sell the car to the company, you don't own ANY of the car personally.

Why do you want to sell the car to the company?

What advantage do you think you see in doing that?

[marshalla]

LDN said:

But if I sold it to your LTD co; I'd not own half the car (via the business) - I'd own none of the car. Whereas this way, if the business were to sell it, I'd have 4K back as would my fiance.

I know what you mean; it's perception trickery perhaps... in simple terms, I feel like I could be paying 12K for an 8K car... my initial 8K and another 4K via my half of the business.

How ? You get your initial 8k back from the business when you sell the car to it.

You don't have to put anything in to the business to allow it to pay the 8k (I hope - and even if you do, that becomes a loan which the business needs to repay to you). When you sell the car to the business, the business owns it, not you.

If the business then sells it, you don't magically get another 4k back - the business gets whatever it sells the car for.

You only get that money if you draw it out of the business.

[BoRED S2upid]

Yes in theory you are you are buying an asset from yourself. However there are plenty of tax benefits to the company owning the car that you / the company can benefit from which I'm sure your aware of.

[vetrof]

LDN said:

But if I sold it to your LTD co; I'd not own half the car (via the business) - I'd own none of the car.

But 8k in your pocket!

[marshalla]

OP - try it this way.

You sell the car to me - I give you 8k.
Your company buys the car from me - and gives me 8k.

Result - you have 8k, your company has a car. What's the difference between that and you selling the car directly to your company ?

You need to stop looking at the company's assets as your own personal assets. They aren't.

[LDN]

marshalla said:

OP - try it this way.

You sell the car to me - I give you 8k.
Your company buys the car from me - and gives me 8k.

Result - you have 8k, your company has a car. What's the difference between that and you selling the car directly to your company ?

You need to stop looking at the company's assets as your own personal assets. They aren't.

Bingo; this has helped. I knew it was a perception thing. Thanks all; yes, accountant has given me the all clear to have our LTD co. buy the car from me - and so I was merely getting my head around what became a small riddle.

There are benefits and added to that, I don't want to own the car any more as I'd like to free up that cash. The business can afford it and it's a great car; so it seems sensible to keep it in the family, as it were.

[marshalla]

Right - just two things remain -

1) watch how you use the car, it may become a taxable benefit
2) My commission on the sale of the car. Having bought it for £8k, I need to make at least £1k profit on it so when can I expect the cheque ?

[LDN]

marshalla said:

Right - just two things remain -

1) watch how you use the car, it may become a taxable benefit
2) My commission on the sale of the car. Having bought it for £8k, I need to make at least £1k profit on it so when can I expect the cheque ?

Ha! It's on the way!

[KFC]

marshalla said:

OP - try it this way.

You sell the car to me - I give you 8k.
Your company buys the car from me - and gives me 8k.

Result - you have 8k, your company has a car. What's the difference between that and you selling the car directly to your company ?

You need to stop looking at the company's assets as your own personal assets. They aren't.

But back in the real world of a small business owner, the line between 'yours' and 'companies' is very, very blurred.

Selling the car to your own company and then continuing to use it for personal stuff anyway could be seen as a reasonable way to get £8k out of the company in a tax beneficial way...

[Eric Mc]

Hold on a second.

I am still perplexed as to what benefits you think you will obtain by having the car in the company.

Is it a Commercial Vehicle rather than a car?

Is it a low or no emission car?

Is it a "Pool Car".

Where will the car be located when not in use?

If not any of the above, you will be taxed under the Benefit in Kind system and the company will also have to pay Class 1A NIC.

Have you been completing annual Form P11Ds up to now? If not, you very likely will have to from now on.

[tight fart]

I wouldn't worry about it he has a fiancé, it will all be hers soon anyway!

Edited by tight fart on Wednesday 7th January 19:58

[eps]

I thought the original book price would also come in to consideration with this as well... or am I thinking about new / leased company cars.. i.e. the business gets taxed on the book price of the asset not the purchase price.