Bringing in equipment to a new limited company

Hi Simon,

Firstly, there might be tax consequences, if as an individual you incorporate a business by transferring all the assets of the business, in exchange wholly or partly for shares, although there are also tax reliefs available. We would therefore strongly recommend that this course of action is not undertaken without proper accountancy advice before proceeding.

That said, we can provide you with the process of entering the transactions onto Quick File, depending on which method is used, in all cases you will need to enter a journal as shown in the examples below.

This would depend on whether you’re keeping an asset register and also if the asset are the same type of asset i.e. Office Equipment, Plant and Machinery etc.If you’re not sure and for a clear audit trail it may be best to journal each asset.

Method 1: Transferring all Assets in Exchange for Shares:

  1. The journal system can be accessed through the full chart of accounts (COA) from your dashboard by clicking ‘Reports >> Chart of accounts’ from top navigation menu option, followed by ‘New Journal Entry’.

  2. Now enter the journal, I have attached an example of how to complete the Journal below:

  1. Once entered, click ‘Save Journal Entry’ to save the journal.

We would also recommend that you, as a sole trader in your personal capacity, enter into a contract with the new company for all (or some) of the assets of the business to be transferred to the company in return for shares.

From an accounting point of view the most convenient date for the transfer will usually be at the end of the financial year of the existing business so that accounts can be drawn up for whole years.

Method 2: Selling the Assets to the Company Wholly for Cash:

  1. Access the journal system and enter the journal as shown in the example below:

  1. The company will now owe the Director the money for the Asset and this is shown on your Director’s Loan Account.

Method 3: A Mix of Shares and Cash:

You are also able to transfer all the assets of the Sole Trader business, in exchange for part cash and part shares:

Other Considerations: Selling the Goodwill to the Company Wholly for Cash:

  1. Access the journal system and enter the journal as shown in the example below:

Only ‘Method 1’ will qualify for Incorporation Relief i.e. you must transfer all the business, including all its assets (other than cash), as a going concern in return for shares in the company if you wish to claim ‘incorporation Relief’, although your Accountant will be best placed to advise.

Finally, make sure to enter the correct date on any of the journals show above i.e. the date of incorporation. It is also advisable to retain full details of the method of valuation used to value any goodwill or secondhand assets on incorporation, this will be required should HMRC raise a full or aspect enquiry.