Options for large amount of money in ltd company?

[Underbase]

This is not a wash trade - He is hedging his position and any spreadbetting would be totally fine

The problem he has is how to ensure that the spreadbet wins whilst the company position loses. This is not easy and I cant think of a way to do this

The answer here is, it depends. What the transaction is not is a "Wash Sale" but instead a "Wash Trade". A Wash Sale has a specific legal meaning, selling something at a loss and buying it back within a short period of time. Thus taking a capital loss in the current tax year but holding the position.

A wash trade is something different, and it is buying/selling a security to have a net flat position (no market exposure). And this is definitely a no-no in the USA or on any US exchange. Even if a derivative in use (spread bet) it is considered market abuse as you are changing the market (increasing volume) when there is no net effect. However, the UK is a bit more fuzzy due to the principles based approach. You would probably get away with it if you have never been a market professional and the size was small. What HMRC think of it, who knows. I have been subject to a wash trade investigation on a US exchange before, and getting that first email from a lawyer at the CFTC making an 10 page inquiry is much more scary than HMRC. Nice letter headed paper.

There are a number of other factors of course, as said above how do you know the stock will go up/down? Next, if you are short on a stock even via spread betting the equity curve would surely include the short sale lending fees, and unless you have a broker that gives you all of the lending fees you might get from your long position I suspect you will be leaking cash from the difference. Kinda like borrowing money from the bank at x% and putting it in a savings account and they give you x-y% back.

I would get some serious advice based on the market the shares are in before attempting.

[Iliketax]

The problem he has is how to ensure that the spreadbet wins whilst the company position loses. This is not easy and I cant think of a way to do this

The way that the tax avoidance scheme does it is that you choose your contract and bet to have (say) 90% chance of losing (and 10% winning) in the company. If the company 'accidentally' wins then you double up an do it again.

The problem I have with this (and I have reviewed the documents where it has been done between a company and an employee as a way of paying a bonus) is that I do not think it works from a tax perspective. And there are lot of reasons for thinking that. I am sure that the scum bag organisation that is selling this (still, I think) has an opinion from a QC about the weather on the day that he or she laughed them at them. But HMRC will not like it. And just for the record, I have nothing to do with HMRC.

1. Spread betting is supposed to be tax-free. But that does not apply to employment income where it is part of a way of paying a bonus (and you are a director which equals being an employee for these tax purposes). As the company will be involved in the spread bet in some way (margins, getting the contracts symmetrical, talking to the same IFA, counter-party etc) then HMRC will say it is employment-related and that PAYE/NIC should be withheld as if it were a normal bonus. Oh, and they'll want interest and penalties.

2. Or they might say that the spread bet is an employment-related security as it is something similar to a contract for difference. And so they will want PAYE/NIC and section 222 tax and interest and penalties. And HMRC have a 'task force' that is actively challenging contracts for differences at the moment (and not just on a valuation front).

3. The scum-bag organisation has apparently said that DOTAS does not apply. I think they are wrong and I would be very surprised if HMRC or a court would agree. And anyway, the government is consulting on changing the DOTAS hallmark on financial products at the moment so by the time you get around to it no one in the world could come up with a view that it is not DOTAS-able. When HMRC find out about it (oh look, the company has lost 100% of its assets, they must have just lost the keys to the petty cash tin, can't be anything untoward going on there then) you will be very likely to get an APN.

4. And you might even be one of the lucky ones who ends with a GAAR counteraction notice as everyone who looks at it will think it is, well, perhaps, just a little bit, abusive. So if you do decide to do it, it would be worthwhile looking out for the consultation document as to what the new penalty will be (e.g. 200% of the amount of tax that is recovered by the GAAR?).

So let's work out the highest marginal tax rate if HMRC successfully take the ERS route:

- income tax: 45%
- NIC: 2%
- employer's NIC: 13.8%
- s222: 45% x 45%
- more NIC: 2% x 45%
- more employer's NIC: 13.8% x 45%

I'm not going to bother to add all this up but it is quite high. Especially when you add interest.

And if the GAAR penalty was to be 200% of the tax recovered (which was the Labour Party's proposal). Well, you and your company would owe quite a lot of money.

[Underbase]

The way that the tax avoidance scheme does it is that you choose your contract and bet to have (say) 90% chance of losing (and 10% winning) in the company. If the company 'accidentally' wins then you double up an do it again.

Ahh that is a different story as that from a market compliance view it is fine (and I have seen it done and its because there is a real risk to it rather than just buying/selling the same stock) but I am in agreement with you, I am sure HMRC will find a way to smack it down.

[northernladuk]

Why am I thinking deluded and the OP are the same person?

[b0redom]

Touch yourself inappropriately, and then threaten to sue yourself for sexual discrimination. Pay an out of court settlement for £1.7M to yourself. Job done.

Sounds more plausible than what you're suggesting above anyway.

[Lewis]

Out of interest, what is the process for investing using company funds? I assume you can create a trading account somewhere in the company name. Can anyone recommend a form that does this, I have money sitting in a business account earning virtually nothing but haven't really considered the investment option. Sounds like it is worth some consideration. Are they any downsides (other than investments can go down as well as up!)?

[Waldorf]

Out of interest, what is the process for investing using company funds? I assume you can create a trading account somewhere in the company name. Can anyone recommend a form that does this, I have money sitting in a business account earning virtually nothing but haven't really considered the investment option. Sounds like it is worth some consideration. Are they any downsides (other than investments can go down as well as up!)?

Barclays Stockbrokers will open an account in a company name. Be careful of doing lots of trades as your accountant will need to do the individual calculations and may up their fees!

[syrio]

Out of interest, what is the process for investing using company funds? I assume you can create a trading account somewhere in the company name. Can anyone recommend a form that does this,

I have a company account with selftrade, they used to be ok but I wouldn't recommend them now. I don't know what brokers offer company accounts, but I'm sure there are a number. Interactive Investor does, and they might be a good choice.

See Monevator Compare the UK’s cheapest online brokers for a good list of brokers.

The company doesn't pay corporation tax on dividends received. I'm not entirely sure yet what happens when the new dividend tax comes in next year.

The company pays corporation tax on capital gains when investments are sold, there isn't any tax free capital gains allowance, but you do get indexation relief.

If you aren't already making company contributions to your SIPP I would consider that before I made any investments in the company.

Are they any downsides (other than investments can go down as well as up!)?

You might not be able to get Entrepreneurs Relief if you have a lot of investments.

[Lewis]

Thanks all, very helpful.

[unixman]

Investing 3.3k per month for 23 years would only require a ~5% annual return to achieve 1.7M (notwithstanding CT, charges etc.), which is hardly outrageous.

Are you sure about that ? Unix says different:

39600*(1.05^23)
121632.34073434525055898000

I know that is taking the investment yearly instead of monthly, but even so. Seems more like 121k than 1.7 mil (?)


On topic, obviously the OP needs financial advice, preferably from several different IFAs. Personally I would take cash out and pay the tax, or leave it in and run the company doing something I like, being an entrepreneur for a bit. Start your own microsoft.