Can I buy artwork through my Limited Company?

11 September 2023

Christie Inns

Reducing Tax, Accounting & Compliance, Building a Business

Welcome back to our mini-series on ‘Can I buy…’ exploring the less common purchases a company may wish to make.

If this is the first one you’ve stumbled across, so far, we’ve looked at:

This time, we’ll be looking at artwork as an alternative form of investment and the tax implications that owning art through your company may have.

What do I need to know before I buy artwork through my company?

There’s nothing to stop your company purchasing a classic Monet or Rembrandt, or perhaps a more contemporary Andy Warhol.

However there are some important things to consider when it comes to the tax treatment.

To illustrate this, lets look at three scenarios…

Your company buys artwork which hangs in company premises

The question we’re looking at in this scenario is if you could get tax relief on your purchase, and the answer depends on the type of business your company is engaged in.

Hospitality

Say you’re operating a chain of restaurants or hotels and the art was placed in the dining area of the restaurant or in the guest hotel suites, Mr Tax man would let you claim the annual investment allowance on your purchase and deduct the full cost against your taxable profits.

This is because an element of your business is the creation of ‘atmosphere and ambiance’ – you want the interior of your restaurant to be inviting to your guests.

You’re not just selling food, you’re selling an experience, and the artwork acts as ‘apparatus’ which helps to achieve that.

Service Based

Now let’s say you’re an accountant, and you purchase artwork for your meeting room wall.

Yes, you may host client meetings in that room and you want their experience of coming to your office to be pleasant, however your main trade is not concerned with providing ‘atmosphere and ambiance’.

It’s concerned with providing excellent tax advice and business advisory services.

In this case, you could buy the artwork, you just wouldn’t be allowed any tax relief on it.

Your company buys artwork which hangs on your living room wall at home

This is a costly scenario for you personally.

Whilst your company has paid for the artwork with company funds, you are benefitting from the enjoyment of that artwork in your own home.

Your company has purchased an asset for you to use personally, much like they would be doing if they provided you with a company car.

In this case, you could be liable to a P11D benefit in kind, which would be calculated based on 20% of the cost to the company.

Let’s look at an example:

Say your company buys a lovely painting for £20,000 with the intention of hanging it in the office.

After 3 months you decide that it’s such a beautiful piece that you want to look at it all day every day, so you take it home.

Benefit in Kind

You have had this art hanging in your home for 9 out of 12 months of the tax year, so you are assessed to a benefit in kind of:

£20,000 x 20% x 9/12 = £3,000

You may be a 40% taxpayer, so that means a personal tax liability of £1,200.

Your company would also be required to pay Class 1A National Insurance of £414, which is at the current rate of 13.8%.

Your company would however receive tax relief on the Class 1A NICs paid of £414, as the provision of the artwork, as the provision of the artwork forms part of your remuneration package, much like salary costs.

You buy the artwork personally

This scenario is concerned with the tax payable when you eventually sell the artwork.

Example

Let’s use our £20,000 painting as above, but this time you bought it personally.

You decide to sell this a few months later for proceeds of £30,000, making a gain of £10,000 – it’s been a very good investment!

Tax on Profit

You’ll be able to make use of your Capital Gains Tax Annual Exempt Amount which is currently £6,000, reducing your taxable gain down to £4,000.

Assuming you’re a higher rate tax payer, you’ll pay capital gains tax at 20%, which is £800

If you’re a basic rate taxpayer, you’ll pay capital gains tax at 10%, which is £400.

In this scenario our painting both cost and sold for more than £6,000, however there are special ‘chattel’ rules if either the cost or sales proceeds were below this amount.

If it was a company purchase how would tax be calculated on the profit?

Now, if you’d have held this in your company and sold it for the same, you’d have no annual exemption to offset and, depending on your company profits, you could be paying corporation tax on your gain of up to 26.5%, equating to £2,650.

Summary

So the take away from above is largely dependent on the nature of your business and what your intentions for the artwork are.

If you’re in the hospitality sector looking for up-market décor then a company purchase would make sense.

However if you’re looking to hold onto the art as an investment with some personal enjoyment, then buying it personally may be the way to go.

Next up in the series… can I buy gold coins through my company?

Getting in touch with us

At Friend & Grant we are always on the lookout for great ways for business owners to take advantage of the many benefits available from operating your own limited company.

To find out more about how we can help you save tax why not contact us to discuss your needs and how we can assist you.