Buying written down vehicle fro-m LTD and then selling for profit

[bodgitt&scarperLTD]

Say you have a vehicle, or plant in your LTD company. You, as director, buy it for a negligable sum, far below market value (ie, the written down value). You then sell for a large profit.

What tax are you personally liable for?

 

[Alan]

You, as director, buy it for a negligable sum, far below market value (ie, the written down value).

Buying far below market value is effectively a fraud. You have to buy it at a market value and be able to justify to HMRC if they ask. You could get a quote from a trade dealer for instance.

If you can't justify the price then if caught you will pay tax a as benefit in kind as far as I understand ( and maybe penalties I don't know - an accountant could advise )

 

[Frank the Insurance guy]

As a Director you have a duty to always act in the best interest of the company, not you personally.

You must therefore ensure that any sale of asset is at the market rate (not book value) - especially important if selling to yourself personally!

 

[bodgitt&scarperLTD]

I'm aware of the above, however; what sanctions can be/are imposed against directors who do this?

 

[Frank the Insurance guy]

I imagine worse case is that you can be disqualified as a director.

In best case, you will just need to reimburse the company to put it back in the position that it would have been had it sold the vehicle at market value.

 

[UK Contractor Accountant]

The transfer at undervalue will be treated as employment income and taxed as a benefit in kind via form P11D. There will also be class 1A NIC due on the undervalue at 13.8%.

Capital allowances may also be restricted for the undervalue.

 

[WaveJumper]

Defiantly sounds like you need to have a chat with your accountant before it comes back to bite you on the backside.

 

[The Byre]

I am reminded of a German chap I knew who tried to make use of an area of Italian law (broadcasting) that was totally unregulated and therefore one could do anything. So he built a giant 100kW radio transmitter and the authorities came and closed him down and took his transmitter away.

"I thought I could do anything - there is no law governing FM broadcasting!" he protested to the police chief that lead the raid.

"That is very true, Seniore!" admitted the chief. "But not absolutely anything!"

Buy the car/aardvark harvesting machine/scrote-warbler/whatever cheaply - but not at a pish-take price! And do not sell it straight away. Use it privately for a year or so - then you can sell it. But as my old mother used to tell me - you can do anything, as long as you don't get caught! Buying that scrote-warbler for £1 and selling it a week later for £3,000 is asking for trouble!

 

[bodgitt&scarperLTD]

The transfer at undervalue will be treated as employment income and taxed as a benefit in kind via form P11D. There will also be class 1A NIC due on the undervalue at 13.8%.

Capital allowances may also be restricted for the undervalue.

Could you expand upon the last bit?

To be clear- I'm not doing this personally, I'm not even LTD. But in the trades it's so often touted as 'legal' tax avoidance. So I thought I'd ask the experts- as it's one of those things where common sense tells you that it's all fine and dandy until you are subject to a tax investiogation- and then what are the consequences?