Company Investments
Discussion
Hi All
I run a small IT consultancy. Currently we have between 30K and 50k in the bank. Any ideas for what I can do with it? It just sits there getting bigger every year and I'd rather it was working for me rather than the bank.
If I take it as a Dividend I'd get killed over Tax and I already do alright from the company.
I've thought about buying residential proerty with it to rent but would need a very specific mortgage, I guess, to cover it.
Any ideas gratefully appreciated?
I run a small IT consultancy. Currently we have between 30K and 50k in the bank. Any ideas for what I can do with it? It just sits there getting bigger every year and I'd rather it was working for me rather than the bank.
If I take it as a Dividend I'd get killed over Tax and I already do alright from the company.
I've thought about buying residential proerty with it to rent but would need a very specific mortgage, I guess, to cover it.
Any ideas gratefully appreciated?
I presume you are getting interest on these monies.
Interest credited into company bank accounts should be received without any tax deducted at source by the bank (it's amazing how often banks forget this!).
The company is liable to pay Corporation Tax on this interest received as part of its overall CT bill. The tax it pays will be at whatever tax rate is appropriate for the size of the company.
With company investments, make sure that any investment income is incidental to the main activity of the company. Otherwise, the company might become a "Close Investment Company" and could lose some of the beneficial tax rates normally applicable to small "Close Trading Companies".
Interest credited into company bank accounts should be received without any tax deducted at source by the bank (it's amazing how often banks forget this!).
The company is liable to pay Corporation Tax on this interest received as part of its overall CT bill. The tax it pays will be at whatever tax rate is appropriate for the size of the company.
With company investments, make sure that any investment income is incidental to the main activity of the company. Otherwise, the company might become a "Close Investment Company" and could lose some of the beneficial tax rates normally applicable to small "Close Trading Companies".
I have been asking the same question for a while now.
Have 200k invested in rolling 6 month Corporate Bond with bank earning average interest. Must be something better to invest in. It's always the niggle that it might be required at short notice that prevents me tying it up for longer periods. Spreading the amount over some low/medium/high risk investments is probably best.
>> Edited by Gucci on Thursday 26th May 13:30
Have 200k invested in rolling 6 month Corporate Bond with bank earning average interest. Must be something better to invest in. It's always the niggle that it might be required at short notice that prevents me tying it up for longer periods. Spreading the amount over some low/medium/high risk investments is probably best.
>> Edited by Gucci on Thursday 26th May 13:30
Gucci said:
Have thought about using the amount to go towards my new house but i'm sure the benefit in kind would cripple me. If indeed its legal?
Dividend would be better else your company would own your house.
You could possibly take it as a directors loan though? 0% mortgage sounds good :up
and you could also take £16000 taper relief on the shareholding over 2 years tax free. DO NOT TREAT A DRAWING FROM THE COMPANY AS A LOAN
The following consequences arise -
i) the loan is "illegal" under Company Law. You could find yourself prosecuted for an illegal payment to a director.
ii) because it's illegal, the Inland Revenue will want Corporation Tax calculated at the company's top rate on the outstanding balance at the end of the financial year. This is collected under the prvisions of Section 419 and is paid on top of and at the same time as the normal Corporation Tax liability.
Drawing a straight dividend would be a simple and resonably tax efficient way of getting the money out of the company. Be aware that all dividends now generate an automatic 19% Corporation Tax liability on the value of the dividend drawn.
iii) if the balance of the loan at 5 April exceeds £5,000, and no interest or a very low interest amount has been charged on the loan, then the diretor will have received a beneficial loan and will be liable to a BIK on the difference between the actual interest charged and the bank base rate.
Such loans need to be declared on the P11d.
>> Edited by Eric Mc on Thursday 26th May 14:54
The following consequences arise -
i) the loan is "illegal" under Company Law. You could find yourself prosecuted for an illegal payment to a director.
ii) because it's illegal, the Inland Revenue will want Corporation Tax calculated at the company's top rate on the outstanding balance at the end of the financial year. This is collected under the prvisions of Section 419 and is paid on top of and at the same time as the normal Corporation Tax liability.
Drawing a straight dividend would be a simple and resonably tax efficient way of getting the money out of the company. Be aware that all dividends now generate an automatic 19% Corporation Tax liability on the value of the dividend drawn.
iii) if the balance of the loan at 5 April exceeds £5,000, and no interest or a very low interest amount has been charged on the loan, then the diretor will have received a beneficial loan and will be liable to a BIK on the difference between the actual interest charged and the bank base rate.
Such loans need to be declared on the P11d.
>> Edited by Eric Mc on Thursday 26th May 14:54
I am told that there are changes afoot in June that will allow coporate money to be put off-shore and then tax paid only when it is brought back, rather than annualy. I had hoped to ensure my business made a loss in my final raing years and to offset the loss with the tax being paid on the money as it comes back on-shore. Not entirely sure how it works but have an adviser coming to see me early June.
The other thing to bear in mind is that the money’s not yours it’s the company’s. If your company ever got into trouble then creditors will have first peck at the company’s assets (cash, property, etc) – not you. As such, I tend to take out surplus working capital, pay Tax on it, and ring-fence it.
Anyway, the whole point of being in business is to make a profit – so why not take it.
Also, if you ever sold your company you would not get the 75% Tax relief on the capital gain if more than 20% of the company’s activity / income was from investments. It may not seem an issue now, but if your company started making more and more investments over the next, say, five years it could create problems for you if you ever came to sell the company.
Lastly, if you have excessive monies sloshing around it can cause you to become too relaxed in running your business (reigning in costs, tight credit control, etc). My company makes plenty of profit but I take most of it out so that the managers have to run it smartly.
Anyway, the whole point of being in business is to make a profit – so why not take it.
Also, if you ever sold your company you would not get the 75% Tax relief on the capital gain if more than 20% of the company’s activity / income was from investments. It may not seem an issue now, but if your company started making more and more investments over the next, say, five years it could create problems for you if you ever came to sell the company.
Lastly, if you have excessive monies sloshing around it can cause you to become too relaxed in running your business (reigning in costs, tight credit control, etc). My company makes plenty of profit but I take most of it out so that the managers have to run it smartly.
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