Things to consider when using personal assets for your small business

While you may prefer to keep your business assets separate from your personal assets, it’s possible to combine the two. There are advantages and disadvantages to doing this, and it’s wise to consider both before you use personal assets for your small business. 

This article will list a few things to consider when using personal assets within your business. The topics we’ll cover include:

• Defining personal assets
• Separating personal use and business use
• Advantages of using personal assets
• Disadvantages of using personal assets

Business assets are anything that your company owns that’s worth money, and that you need to continue operating. This means any machinery or computer equipment you use for company-related tasks are business assets. You can use this definition for your own property, too. Your money, car, phone, and laptop are all examples of personal assets.

Many personal assets aren’t particularly useful, unless you operate in a related industry — there’s very little your kettle can do to help customers unless you run a coffee shop. That said, with the COVID-19 pandemic and the growing popularity of home offices, there is much more of an overlap between personal assets and business assets than there was in previous years.

For instance, let’s say a self-employed individual runs their company from a home office. They’re using an old desk to sit their computer on, and they often respond to work emails on their smartphone. The desk and the phone aren’t business assets, but the individual uses them for work-related tasks.

Classifying your personal and business assets is important because if you register as a limited company, your assets will have a significant impact on the amount of tax you pay. If the self employed individual in our example buys a new desk and uses it in their home office, they can list the purchase as a business expense and claim the amount back on their taxes. 

Using personal assets has less impact if you’re a sole trader because you and your company are essentially the same entity. It’s still important for some accounting tasks, though: you’ll need to list your assets on a company balance sheet, for example.

If you wish to use a personal asset for business use, consider if you’ll use the item in question purely for work purposes or continue using it privately as well. If you’re, you need to work out how you’ll divide that use. 

Using your personal car for business purposes is a common example of using an asset for work and private purposes at the same time. For example, if you’re self-employed and only use the vehicle for work, you can claim everything from repairs to MOTs and petrol as expenses. 

On the other hand, if you’re using the car for personal use as well, you’ll not be able to claim most servicing as business expenses. This is because expenses need to be exclusively related to the running of your company. You would still be able to claim mileage for commuting as an expense, and modifications like decals of your company logo, as these are specifically for your work and serve no other purpose.

You may also need to change your car insurance policy in this situation. Most insurance providers will have different classes for business vehicles, personal vehicles, and mixed-use vehicles.

If you can use an existing personal asset for an important business function, you’ll save money buying new equipment. Although this is rarely an option if you need specific technical or manufacturing equipment, it’s a good idea if you have a decent laptop or phone that you’re not using for anything else. 

By using a personal asset instead of buying a new tool or computer, you’ll be using something you’re familiar with and that you’ve used before. This means you don’t need to spend time training yourself or researching how to use the asset.

While using personal assets for business use can save money, they may not always be up to the task. A laptop can meet the needs of most companies, but if you operate in a very digitally-focused industry, you might need more powerful computers. For many professions, mostly technical ones that involve a lot of special equipment, you’ll need to buy specific tools for business use. While your own resources can help, they may not fulfil the needs of every job.

Your money also counts as an asset, and you may want to use your private funds to make business purchases. This might be a necessary move at the time, but remember that keeping personal and business finances separate is important if you want to make your accounting simple. By mixing your money with company funds, you may make your financial management much more complicated and time-consuming.

One main reason you should separate personal and business assets is that it makes tracking business expenses for tax purposes easier. You can further simplify this by using a Countingup account. The Countingup app automatically categorises your expenses and puts each transaction in HMRC-approved categories. It means you’ll save hours of admin organising your transactions to identify and categorise business expenses when the time comes to fill in your Self Assessment tax return.

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.