Incorporating your Business - Tax allowances for plant and machinery

August 2005

Possible tax advantage can be created if you are using the Holdover Relief provisions when you incorporate your business. (Holdover relief is used when your business assets are transferred partly for shares in the new company but predominately as a credit to your loan account in the company.)

If this applies then you can elect to sell plant and machinery to the company for a nominal price. As this nominal price is likely to be much lower than the tax written down value of the assets, this can give rise to two significant advantages:

1. A cash flow saving as the resulting balancing allowance can be used to reduce your final tax bill as an unincorporated business, and

2. As your marginal rate of tax as an individual is likely to be higher than corporation tax rates, then you create a permanent saving in tax.