Leasing equipment from yourself?!

hambrook

I'm a home brewer producing 40 pints every couple of weeks, friends and family etc. However local pub is interested in stocking one of my beers so I need to set myself up as a Nanobrewery. Now I understand about Beer duty, environmental health, Self assessment, however I have a question on equipment costs.

By the time I start trading in July I will probably have spent circa £3-5k on equipment costs funded by myself and it would be good to get some money back from that. One thought would be to 'rent / lease' the equipment to the new business, how legit is this / how to set up?

I don't plan for the brewery to make a penny profit; UNLESS it takes off. All the time I am brewing in the garage, let's assume it turns over £200pm of which £50 will be materials, £30 Excise duty, £100 rental of equipment and casks, £30 utility bill, £10 insurance etc

The goal here is to get something back but not be in a position to have to pay corporation tax et al. If it seriously takes off it will require a move to commercial premises and a huge investment.

How have other people gone from hobby to small business and getting back some of the equipment costs?

zygurat789

hambrook wrote: »

I'm a home brewer producing 40 pints every couple of weeks, friends and family etc. However local pub is interested in stocking one of my beers so I need to set myself up as a Nanobrewery. Now I understand about Beer duty, environmental health, Self assessment, however I have a question on equipment costs.

By the time I start trading in July I will probably have spent circa £3-5k on equipment costs funded by myself and it would be good to get some money back from that. One thought would be to 'rent / lease' the equipment to the new business, how legit is this / how to set up?

I don't plan for the brewery to make a penny profit; UNLESS it takes off. All the time I am brewing in the garage, let's assume it turns over £200pm of which £50 will be materials, £30 Excise duty, £100 rental of equipment and casks, £30 utility bill, £10 insurance etc

The goal here is to get something back but not be in a position to have to pay corporation tax et al. If it seriously takes off it will require a move to commercial premises and a huge investment.

How have other people gone from hobby to small business and getting back some of the equipment costs?

If you are a sole trader it will make no difference, it will be in one pocket and out of the other.
If you are an LTD then the bigger the loss you make the more you will have to put in to fund it.
Try this. Aim to make a profgit and then the surplus funds generated can be used to repay the loan you made the LTD
TAX FREE.

bris

You still have to pay tax on anything you make on the rental so it really doesn't make any difference.

hambrook

zygurat789 wrote: »

If you are a sole trader it will make no difference, it will be in one pocket and out of the other.
If you are an LTD then the bigger the loss you make the more you will have to put in to fund it.
Try this. Aim to make a profgit and then the surplus funds generated can be used to repay the loan you made the LTD
TAX FREE.

Yes the brewery would be a Ltd company and thats what I was thinking about - repaying the loan, that could take years!

hambrook

bris wrote: »

You still have to pay tax on anything you make on the rental so it really doesn't make any difference.

Well if the startup loan from me to the Ltd company was say, £3k then then the repayment would be tax free. Agreed the Equipment lease cost would be liable to Self Assessment tax but is that better than capital gains on the small business?

zygurat789

hambrook wrote: »

Well if the startup loan from me to the Ltd company was say, £3k then then the repayment would be tax free. Agreed the Equipment lease cost would be liable to Self Assessment tax but is that better than capital gains on the small business?

What do you mean by " the capital gains on the small business"?

hambrook

zygurat789 wrote: »

What do you mean by " the capital gains on the small business"?

Apologies corporation tax!

Mistral001

The equipment will be a capital expense and it can be brought into the business even if it was bought before you started trading. Only a proportion of the capital expenses is put down as an expense each year.

paddyrg

Corporation tax is lower than personal tax BUT taking the money out as a dividend will set the overall tax burden back roughly equal. However if the company is repaying directors loans (ie £3k you lend the company to buy the equipment) that should (AIUI) be pre-tax. You may, however, need to consider your personal tax position for the equipment you sold to the company (with the £3k you lent the company to do so).

There's no easy way to totally avoid tax, or everyone would abuse it!

zygurat789

paddyrg wrote: »

Corporation tax is lower than personal tax BUT taking the money out as a dividend will set the overall tax burden back roughly equal. However if the company is repaying directors loans (ie £3k you lend the company to buy the equipment) that should (AIUI) be pre-tax. You may, however, need to consider your personal tax position for the equipment you sold to the company (with the £3k you lent the company to do so).

There's no easy way to totally avoid tax, or everyone would abuse it!

Once CT has been paid a dividend may be distributed to shareholders with no extra tax. when a shareholder receives a dividend it is subject to 10% and comes with a 10% tax credit so no additional tax to pay and also no NI.
If a director or shareholder buys an asset which the company uses then, unless there is evidence to the contrary, it has happened at the same value so no profit or loss and no tax situation. The (£3K) loan is neither pre or post tax it is a loan which may be repaid and there is no tax consequence just as there is no tax consequence when a loan is received.
If you are a director/shareholder then you can pay a lot less tax & NI than if you received the same income as self employed or salary.