Accountancy/TAX: Investment company - Is it taxed on profit or on paper value?

[sojan]

had started a limited company to invest in stocks/bonds/commodities etc. The money is not big and initial investment of £15K and now has grown to £18K in the previous year. Haven't had a formal accountant/Free-agent yet, but using Pandle software for book-keeping as not worth to have a full time agent.

The 15K has been used to buy various stocks and then sell and buy etc. So there is about 100+ transactions in the previous year. the £18K is still unrealised profit, but the value of the stocks/commodities etc shown in the investment website. So the money is still not realised and not in limited company bank account yet.


I looked into an agent who could do the yearly tax calculation and one of the item he mentioned that for a "Financial Investment" limited company, the calculation is done on total bought/sold shares and the difference etc. So the value "on-paper" is shown as £18K, i have to provide all transactions into the book-keeping tool and then provide tax on the "on-paper" value difference. So in my instance, this would be profit of £18k-£15k= £3k and have to pay tax on it, though I haven't materialised it into bank account.

so to all fellow Accountants, Is the above understanding correct? Is that the way "Investment limited company" accounting is done every year? So what happens when I withdraw the money/profit to my bank account? At that time, the profit will be double taxed? Any link to how taxation works on an investment limited company?

[WTFH]

had started a limited company to invest in stocks/bonds/commodities etc. The money is not big and initial investment of £15K and now has grown to £18K in the previous year. Haven't had a formal accountant/Free-agent yet, but using Pandle software for book-keeping as not worth to have a full time agent.

The 15K has been used to buy various stocks and then sell and buy etc. So there is about 100+ transactions in the previous year. the £18K is still unrealised profit, but the value of the stocks/commodities etc shown in the investment website. So the money is still not realised and not in limited company bank account yet.


I looked into an agent who could do the yearly tax calculation and one of the item he mentioned that for a "Financial Investment" limited company, the calculation is done on total bought/sold shares and the difference etc. So the value "on-paper" is shown as £18K, i have to provide all transactions into the book-keeping tool and then provide tax on the "on-paper" value difference. So in my instance, this would be profit of £18k-£15k= £3k and have to pay tax on it, though I haven't materialised it into bank account.

so to all fellow Accountants, Is the above understanding correct? Is that the way "Investment limited company" accounting is done every year? So what happens when I withdraw the money/profit to my bank account? At that time, the profit will be double taxed? Any link to how taxation works on an investment limited company?

Rely on a professional accountant to advise you.

It might be a case of shutting the barn door after the horse has bolted, but maybe you should have thought about this before setting up your new investment company.

[Fred Bloggs]

Rely on a professional accountant to advise you.

It might be a case of shutting the barn door after the horse has bolted, but maybe you should have thought about this before setting up your new investment company.

Precisely.

[eek]

Rely on a professional accountant to advise you.

It might be a case of shutting the barn door after the horse has bolted, but maybe you should have thought about this before setting up your new investment company.

+1 - you need professional advice and probably should have sought it before you started this hare-brained scheme.

[northernladuk]

so to all fellow Accountants,

So you are an accountant? If you are and you are looking from advice from other accountants shouldn't you be using Accountingweb or similar. This is a board of contractors so you are asking your fellow contractors.

[b0redom]

had started a limited company to invest in stocks/bonds/commodities etc. The money is not big and initial investment of £15K and now has grown to £18K in the previous year. Haven't had a formal accountant/Free-agent yet, but using Pandle software for book-keeping as not worth to have a full time agent.

Not sure why you'd do this as your personal capital gains/ISA would be more tax efficient I would have thought.

The 15K has been used to buy various stocks and then sell and buy etc. So there is about 100+ transactions in the previous year. the £18K is still unrealised profit, but the value of the stocks/commodities etc shown in the investment website. So the money is still not realised and not in limited company bank account yet.

As I understand it everytime you liquidated and then reinvested, you need to pay the tax on the gains. It's akin to you saying, "Well yeah I bought some stuff, and sold it at a profit, but now I've bought more stuff, so I never made a profit." YMMV though as IANAA.

Like everyone else has said though. You need a professional as all our advice is worth exactly how much you've paid for it.

[courtg9000]

Get an accountant and one who knows this particular stuff backwards.
Also get some learning done about the tax rules and other rules on this type of stuff. Not just googling when you hit a snag. Read the textbooks, manauals and case notes from cover to cover and then read them again and again.
This is a complex shizzle. Trust me I know. Been there done that have the t-shirt.
How things are treated tax wise could also depend on the type of trade for example
I am not going to sit here and regurgitate everything I know BUT you need to learn a lot and fast and have an accountant in the know and I say this from a number of years of experience of having one of these companies.

[ASB]

You might post on Accounting Web. But they will tear you a new bottom too.

It is a little complex, but in essense:-

1) There is a profit or loss on each transaction against its original purchase price. This is subject to CT.

2) You need to revalue annually. This is fair value and os a book profit and taxable.

You will notice an element of double taxation in there. You get relief in that the "premium" can in fact be debited back.

by example:-

Buy some shares in WTF for 10k. At the end of year 1 they are quoted at 12k. You revalue the asset and charge -2k to depreciation. This being the 2k profit.

During year 2 you sell them for 15.

So you have 5k profit less the 2k revaluation leaving 3k taxable.

I can't remember the bookkeeping entries you will need and I recall there is some stuff required on the CT600.

At some point you wind this futile venture up. Or pay yourself some dividends or a salary.

These are taxable in your hands of course. So yes there is an element of double taxation. As always.


Edit: Another thing I forgot is whether the company should be paying CT at the main rate. At the moment its irrelevant, but it may change back in the future

[Lance]

had started a limited company to invest in stocks/bonds/commodities etc.

<snip> Haven't had a formal accountant

<snip> not worth to have a full time agent.

<snip> one of the item he mentioned

<snip>Is that the way "Investment limited company" accounting is done

:facepalm

I know this is a professional forum, and I'm supposed to be nice but you are a blithering idiot nonetheless.

[Abbot]

The accounting on this is fairly simple. Under FRS102 you will revalue the assets to fair value each year and then pay corporation tax/carry forward loss on the fair value.

The reason this method is unpopular is because it is a cash flow drain. If you do well then you have an annual tax bill but have not realised any cash from your investment so you are effectively funding it through your personal cash flow.