Business owners who allow their company to use personal assets should consider charging rent for the use. This is another effective way to extract funds from a business tax free. Certain business owned assets can be used by a business owner without any tax implications provided private use is minimal.

Rent – company use of personal assets

The company may be using assets that are owned by you or you are considering acquiring a property to be rented to the company. This can be commercially attractive in some circumstances, examples of which are:

• Asset protection – keeping the building and fixtures and fittings out of company ownership
  
  
• Your pension is maxed out either annually or lifetime allowance
  
  
• You don’t want to commit to large pension contributions in the short term
  
  
• You are looking to buy a property personally and then rent to the company, and due to other factors (e.g. sharehold ing structure or lack of funds available in the company) it makes sense to buy the property personally
  
  
• Assets already in ownership (e.g. commercial building or other assets, and don’t want to transfer them to the company for commercial or tax reasons.)

It can also be tax efficient to hold the asset personally and rent it to the company.

Example in the scenario where dividends are not possible

Consider someone with a £50,000 salary, who owns a property personally that is used by the company. The market value rent for the property is around £22,800.

If the company paid £20,000 as a salary or a bonus, it would cost £22,760 (£20,000 plus employers’ NIC) with a tax and NIC cost of £11,160 (1).

If £22,760 was paid as rent, the tax cost would be £9,104 (2).

In this example, the saving in comparison to salary is £2,056.

Notes

1. Income tax and NICs – based on NIC rates from 6 November 2023
   
   
2. Income tax but no NICs
   

If you sell the asset alongside the shares in the business at a future date, you would usually be able to claim Business Asset Disposal Relief to reduce the tax you pay to 10% of the gain.

Unfortunately, the payment of rent by the company can restrict the relief available when you sell the asset.

The relief is restricted by the percentage of market rent paid by the company. So, if the business pays full market rent, no relief is available.

Furthermore, Business Property Relief can be restricted, increasing potential exposure to inheritance tax. As the asset is owned by you, it will be in your estate when you pass away. Business assets owned by you personally only receive 50% relief, so the remainder is taxed at 40% if your estate exceeds the nil rate band (currently £325,000).

For both reliefs, specialist advice should be taken to ensure relief is maximised.

Personal use of company assets

If you are considering purchasing an asset that will have a business use, you should consider if you can pay for it via the company as an effective way to maximise the value you take out of your business.

Where appropriate the savings could include income tax, NIC, Corporation Tax and VAT.

Whilst a tablet/iPad has the capability to make video and voice calls, it cannot be treated as a mobile phone and fall into the mobile phone exemption.

The asset must be bought and used primarily for business purposes. It will be taxable on you if there is significant personal use, little or no requirement for you to have an asset for your work or it is a reward for your employment.

In some cases, the personal use of the asset may be exempt despite the personal use exceeding the business use. This would only apply if the private use is secondary to the use for work purposes.

Example

If your role requires you to use a laptop for most of the day, it will not be taxable if you use the laptop for personal use in the evenings or weekend. Clearly your personal use would be insignificant to the business use.

Compare this to an individual who works in a trade like manufacturing and only needs a laptop for invoicing and timesheets but has some personal use of the laptop.

HMRC will allow personal use of the laptop provided you need the laptop to carry out the duties of the employment even if the amount of time spent on private use exceeds the business use. The laptop must be sufficient to carry out the invoicing and time sheets. You wouldn’t be able to buy an expensive laptop which you want to use for your film editing hobby and claim it was for business purposes as you wouldn’t need that spec of laptop to carry out your business duties.

32 Ways To Save Tax and Extract Maximum Value From Your Business

These tips are from our eBook, 32 Ways To Save Tax and Extract Maximum Value From Your Business. This guide explores 32 ways to ensure you’re maximising every opportunity you could be, to improve your life, your families and your employees.

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