Our company wants to purchase some machinery from one of the directors; we would be paying £2,000 instead of the market value, which is approximately £3,500. As we would be purchasing below market value, is there any benefit-in-kind? Do we need to take any other factors into consideration from a company perspective? Also, as this is a one-off transaction and not a trade, would the director have to include this on his personal tax return?
Arthur Weller replies:
If the company had paid above the market value, this would have been earnings for the director (see HMRC’s Employment Income Manual at EIM21660) but since the purchase here is at an undervalue, there is no issue. There is no profit here since the sale is at an undervalue, so there is no question of reporting on the tax return. I do not know the exact details, but it is quite possible that it may not be possible for the company to claim annual investment allowance or first-year allowances (connected persons, etc.). In theory, this £1,500 is a gift to the company, so it has inheritance tax implications; however, it is very small, so there is no real concern.