Whether you’re a sole trader, limited company or working together as a partnership, you have assets in your business helping you trade.
Assets are the things your business owns that hold or generate value. They play a crucial role in keeping your business up and running and are essential for accounting. From the cash in your bank account to the office equipment you use daily, business assets can take many forms.
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▪ Business Assets: Anything your business owns that has value, from cash to equipment.
▪ Categories: Divided into current vs. fixed assets and tangible vs. intangible assets.
▪ Why Record Assets? Helps in business valuation, loan applications, and claiming tax relief.
▪ Accounting: Usually recorded on the balance sheet; depreciation applies to certain assets.
▪ Ownership: Sole traders own their assets, while limited companies’ assets belong to the company itself.
▪ Transferring Personal Assets: If you use personal funds to buy assets for your limited company, ownership must be formally transferred.
▪ Closure of a Business: The fate of company assets depends on whether the company is solvent or insolvent.
▪ n.b. Stay Sharp, Stay Savvy and Keep Winning!
Skip right to…
- Business Assets 💻🛠💵💷
- 1- Breaking Down Business Assets: What Are They?
- 2- How To Categorise Your Business Assets
- 3- What’s the Difference Between Tangible and Intangible Assets?
- 3- Why Should You Should Record Your Business Assets
- 4- How Do I Account for Business Assets?
- 5- Who Owns the Business Assets?
- 6- What About Assets I Buy for My Limited Company?
- 8- What Happens to Assets If I Decide to Wind Up My Company?
- Conclusion
Business Assets 💻🛠💵💷
1- Breaking Down Business Assets: What Are They?
Assets encompass everything your business owns that adds value or generates income.
Here’s a snapshot of what can be considered a business asset:
▪ Cash in the bank
▪ Stock or inventory
▪ Office equipment
▪ Property or buildings
▪ Your brand’s reputation (intangible assets, like your business’ trademark and IP)
Business assets are usually classified to ensure they’re accurately recorded in accounts. They’re also crucial for assessing the overall value of the business.
2- How To Categorise Your Business Assets
Business assets are typically categorised in two main ways:
1- Current and Fixed Assets: These are classified based on the asset’s lifespan and how long you plan to use it in the business.
2- Tangible and Intangible Assets: Assets are also categorised based on whether they have a physical presence.
| Type of Asset | Definition | Example |
|---|---|---|
| Current Assets | Expected to be used inside of the next 12 months. | Stock for sale, raw materials, cash in bank. |
| Fixed Assets | Expected to be used for more than 12 months. | Equipment, property, machinery. |
3- What’s the Difference Between Tangible and Intangible Assets?
Tangible Assets: These are physical items you can touch or measure.
Examples include:
▪ Business premises or land
▪ Stored stock
▪ Vehicles
▪ Cash and cash equivalents
▪ Machinery and equipment
▪ Unpaid invoices (amounts owed to you by customers)
Intangible Assets: These don’t have a physical form but still hold significant value.
Examples include:
▪ Brand and business reputation
▪ Patents, copyrights, trademarks, or licenses
3- Why Should You Should Record Your Business Assets
Your business assets represent a significant portion of its worth, so it’s essential to keep detailed records.
Recording assets can help you:
▪ Determine the overall value of your business.
▪ Price an asset correctly if you decide to sell it.
▪ Use assets as collateral for securing a loan.
▪ Claim tax relief such as Capital Allowances.
4- How Do I Account for Business Assets?
Assets are typically recorded on your balance sheet in accounting. (Read more about the balance sheet here.)
This is important for several reasons:
▪ Depreciation: Some assets, especially equipment and machinery, decrease in value over time. This reduction in value is measured using an accounting method called depreciation and is reflected in your records.
▪ Asset and Inventory Management: Using an effective asset management system allows you to track asset quantities and conditions, aiding in their optimal use and insurance valuation.
5- Who Owns the Business Assets?
It’s obvious? Well, not quite, the ownership of assets depends on the business structure:
1- Sole Traders, and Partnerships: You own everything within your business since there’s no legal separation between you and your business.
2- Limited Companies: Assets belong to the company itself, not the shareholders. Even if you’re the sole shareholder, the company is a separate legal entity, so it owns the assets.
6- What About Assets I Buy for My Limited Company?
If you use personal funds to purchase assets for your limited company, you’ll need to transfer ownership to the company.
When transferring, make sure to:
▪ Clearly determine the current market value of the asset, considering its condition and age.
▪ Update your company’s asset records, and recognise the assets on the balance sheet.
▪ Keep the original receipts as evidence.
8- What Happens to Assets If I Decide to Wind Up My Company?
The fate of a company’s assets depends on how you close the business and whether it’s solvent (able to pay its bills):
▪ Insolvent: Assets are sold off to repay creditors.
▪ Solvent: You can choose to close the company through:
▫ Dissolution (Striking Off): Any assets not disposed of before applying for dissolution become the property of the Crown (referred to as ‘bona vacantia’).
▫ Members’ Voluntary Liquidation (MVL): Assets are sold for the benefit of shareholders once all bills are paid.
Thinking of buying back assets from your business? Be aware of the potential tax implications before making a decision. This process can be included as part of the company winding up process, and you’ll need to extract the fair market value of the assets out of the business.
Conclusion
This comprehensive guide on business assets provides clarity on how to categorise, manage, and understand the implications of asset ownership.
Properly accounting for your business assets is crucial for maintaining financial health, ensuring compliance, and optimising tax benefits.
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