A company has recently incorporated and is now looking to buy back the plant and machinery at market value using the credit balance on the Directors Loan account. The equipment would then be rented back to the original company. This is basically to protect the ownership of the machinery.
There is only the one Director and business is solvent although not doing great, so potentially could fold within the next year or so, with HMRC creditor.
Would the transfer/sale of the assets attract VAT, as the individual is not vat registered, would the transfer be better made to another vat registered newco.
Also could the transaction be reversed by HMRC in the event that the original company did fail and was dissolved.
Appreciate any advice....
Replies (7)
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You will need to explain what is to happen a little more clearly. Who is buying what from whom, and why. And what does a credit balance on a DLA have to do with one company buying fixed assets from another?
Incorporated why?
I interpret the OP as one company, recently incorporated. with the equipment to be "bought" by the director of said company.
A number of questions arise from this. If the company is not doing particularly well, why was it incorporated in the first place. Generally speaking decent profits need to be being made before incorporation is worthwhile. Also, if the company isn't doing well, why is it expected to have an HMRC creditor it cannot afford to pay? Again, generally speaking a company has to be doing well (i.e. making profits) before it owes significant amounts to HMRC. The only likely exception is VAT, but the output VAT is never really the company's money in the first place. If the company relies on the output VAT for cash-flow, then that is a business issue.
Charging VAT depends on the status of the seller, not the buyer. The fact that this question is even being asked at all makes me think consulting an accountant face-to-face is the best next step.
Your reference to an "original company" as well as a "recently incorporated" one suggested that there was more than one company. If you had left out the word "original" all would have been clearer.
Yes he can buy the equipment from the company if he wants. His main concern should be to ensure that he can show clearly that he has paid full market value for it. That will be his proof against a liquidator if the company folds. It's the liquidator who could potentially reverse the transaction if it was at an undervalue. I am not sure why you would think that would be anything to do with HMRC.
Even if he pays full market value he'll also have to be careful that he is not preferring himself to the other creditors.
I am not a VAT expert, but I can't see how the sale by the VAT registered company would not be a normal VATable sale.