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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Specific deductions: staffing costs: transfer of assets at under value to employees

An employer carrying on a trade may sometimes transfer a business asset to a director or other employee for no cash consideration (or one that does not represent the market value of the asset). This paragraph is concerned with what deduction in computing trading profits may be allowed to the employer, but it is also necessary to consider:

  • where the asset is trading stock, the amount to be treated as a trading receipt (see BIM33610),
  • where the asset is a chargeable asset for capital gains purposes, the amount to be regarded as disposal proceeds in computing the capital gain or loss arising to the employee,
  • any consequences for capital allowances,
  • the employment income consequences for the director or employee,
  • whether the transfer constitutes a distribution.

In computing the employer’s trading profits the amount of any deduction allowable depends on whether the transfer of the asset to the director or employee is in satisfaction of a quantified antecedent debt for services provided, or not.

Transfer in satisfaction of antecedent debt

Where the accounts show that an employer has transferred an asset to an employee or director in full satisfaction of a quantified antecedent debt for services provided by the transferee, a deduction is allowed for the amount of the antecedent debt, provided that:

  • the sum outstanding represents a commercial reward for the services provided (see BIM47100 - BIM47105), and,
  • the market value of the asset transferred is not significantly different from the amount of the debt.

The timing of the deduction of the sum charged for the services will be determined under the rules at BIM47130 onwards.

Where no antecedent debt

Where the asset is not transferred in satisfaction of a quantified antecedent debt for services the position as regards the deduction in computing profits is analogous to that where the asset in question is sold at its market value and the proceeds passed to the director or employee concerned. In these circumstances a deduction will be due for the market value of the asset (less any cash consideration from the transferee) unless:

  • the asset was not transferred wholly and exclusively for the purposes of the employer’s trade, or
  • the asset represented consideration for services provided on capital account, for example the construction of a fixed asset of the trade, or
  • the asset in question consists of shares in the employing company.

An asset is unlikely to have been transferred wholly and exclusively for the purposes of the employer’s trade if the market value of the asset transferred is in excess of the commercial value to the business of any services provided. See BIM47100 - BIM47105 and, more generally, BIM42105. In such cases any excess of the market value of the asset transferred over value of the services may be in the nature of a gift falling to be disallowed under the rules at BIM45000 onwards).

Where the employer issues new shares to an employee in consideration solely of services provided, no deduction should be allowed on the authority of Lowry v Consolidated African Selection Trust Ltd [1940] 23TC259.