Investing taxes

[Jog On]

Hi all,

I'm a new contractor - just got my first one yesterday, I've got a Ltd company.

I'm still learning a lot about how the tax/salary/dividend thing works. If I am to save all my tax for a year I want that money to work as hard as it can in that time. Ideally I'd like to put it into an ISA wrapped index tracker until I have learnt enough to pick my own stocks.

Does anyone else invest their tax money until it's time to pay it and if so how? I've been looking around for business ISAs, preferably one that might allow me to pay into a tracker and have my own picked stocks. Also if I have a business ISA does that mean I can't have a personal ISA as well?

I'm asking similar questions over at the Motley Fool UK boards but am having trouble finding a 'business ISA' and business investing section as it mainly deals with personal investment.

If anyone here is also a Fool (you'll know who you are) I'd love to know how you get the most out of the money you have to put aside to pay at the end of the year.

[MarillionFan]

Well you pay VAT every quarter so sticking it in an ISA wont be worth it.

You also pay personal tax every quarter.

If you had gone the route of a sole trader you could have stored up 15 monthts worth.

To be honest you are best to get a bank account that pays interest. Abbey National or Cater Allen.kkkkkkk

[Jog On]

If I'm below the VAT threshold (60k?) do need to worry about that?

Also I'm planning to do the minimum salary + dividends thing do I need to pay personal tax every quarter then? I thought it was 19% corp tax once a year?

I now know that there's no such thing as a business ISA so I think something along the lines of a tax efficient tracker would be in order.

I'm wondering if paying the dividend tax into a personal ISA(tracker) would be the way to go. Does it make a diffrerence to HMRC where the tax is paid from at the end of the year?

[xoggoth]

It looks from your points about a "business ISA" that you know this, but just in case, be aware that if you draw it out and invest it in your own name rather than the company's you could be liable to tax on it if it is over £5k because this would count as a director's loan which is a benefit in kind.

PS Any profits from investment by the company will be subject to CT I think.

[themistry]

Index trackers and the stock market are not "sure things". Therefore, if you investing any monies that you "need" in any way over the short term, you are an idiot.

An index tracker is 95%+ likely to make you good returns over 5+ years. Over 3 - 12months, theres every likely hood you will get back less than you put in. go ahead, put in £10k for your tax bill, but dont be surprised to cash out with £9k or ever less the way the FTSE is diving these days.

Head over to fool.co.uk, buy the fool book (motely fool investment guide to the UK) and read the discussions boards (people are much friendler than here ), but above anything else, DO NOT "INVEST" money you need in the short term for christ's sake. And for the record, a savings account is not "INVESTING" hint hint.

TM

[PAG]

if your expected turnover is 60K, you don't have to resgister for VAT, however you will gain by appx 3.4% in first year if you register for flat rate VAT scheme. Hope this helps. Ask your a/c and he will clarify !!!!

My advice, DO NOT invest co money that is required in short term. Specially the money that does not belong to you but HMRC.

[Jog On]

I'm going to talk to my IFA about this. I need to plan for surplus cash and growth anyway.

It's probably best to keep the dividend tax separate to be on the safe side it just seems a shame to leave it in a deposit account but I suppose a cash buffer is always a good idea anyway.

I did ask this over at the fool boards (obviously not in the day traders section), the thread is here:

http://boards.fool.co.uk/Message.asp...whole#10450088

I am quite familiar with the differences between saving, investing and gambling (and a bit too familiar with performing heart surgery in the garage as a hobby ) - I finished the Motley Fook UK invsesting book recently which is why I thought of a tracker when the concept of putting away the HMRC money at regular intervals came up.

I want a tracker for my business anyway which I will put into as well as picking my own stocks/bonds. I think I'll keep the dividend tax tucked up in a deposit account with some other 'just in case' surplus funds.

Thanks for the VAT advice - that's on the to-do list for sure!

[oraclesmith]

You could pay your corp tax early. HMRC pay interest on it at about 5%. See the HMRC site for current rates.

If you're a limited, insist on your business account bank/building society paying your account gross interest. They will need proof you're a limited company. My bank messed this up to start with and had to pay the account back the tax they'd deducted. This is you business account, not your personal account - make sure you keep them separate.

[themistry]

I'm going to talk to my IFA about this. I need to plan for surplus cash and growth anyway.... I finished the Motley Fook UK invsesting book recently which is why I thought of a tracker when the concept of putting away the HMRC money at regular intervals came up.

I would assume if you read the book I read, you certainly would not be wanting to visit an IFA.

Alas, to try and stop you making a costly mistake, the stock market over the short term (sub 1 year) is a gamble. You are looking to invest money that you cannot take a short term risk over.

To help you understand, let us consider you invested £15k from your tax fund. After month 11 you have seen a better than nothing but realisitically terrible return of 6%... hmm, better than nothing. But in month 12, oil prices boom causing market confidence to plummet. The market falls 10%, wiping your 6% return into lets say a -25% loss.

After 12 months your £15k is now worth approx £10,250. Good investing hey?

From months 13 to 24 the market recovers and had you left the money in there, you would have made 9% returns over the 24 months. BUT YOU COULDN'T, as you had to extract the money and absorb any losses to pay your tax bill.

If this makes no sense to you or you think "it will never happen to me", good luck to you, you are destined to lose all your money through pure stupidity. If it does make sense, put your tax money into a safe as houses above inflation savings account.

I hope this clears the mist for u some what,
TM

[Jog On]

I'm pretty much decided that a surplus cash buffer with the tax money is the way to go.

I am aware of the ups and downs of the stock market and the 5 year thing. But yes – thankyou for clearing the mist and saving me from my costly stupidity…

My IFA is a friend – he most probably is a salesperson to many but not to me. He’s a busy chap but I’ll probably grab him sometime in the next few days. The version of the book I read was written at around 2000 so there may be an updated one since then.