Holding large amounts of cash company reserve account

[THEPUMA]

Hi Puma,

Thanks for your reassuring words about not getting caught by the CIC rules for holding too much cash in reserves. As interest rates are so low at the moment, I am considering investing some of the company cash into preference shares. These pay dividends between 7% and 8% instead of the miserly rates offered by the banks. Also, preference share dividends come with a tax credit, so no extra CT is paid on them. I would hold these for quite a few years so even if the price went up a bit I would be unlikely to pay CT on a capital gain due to indexation allowance. If I went down this route and put 100k into preference shares, do you think that I would then be in danger of breaching the CIC rules? i.e. provided the pref dividend income was below 20% of profits, do you think this would be ok?

Hi Tangent

Yes I think it is potentially an issue. Probably easier to discuss the various alternatives available to you on the phone. If you want to PM me I will give you my contact details so that we can discuss in more detail.

Puma

[electronicfur]

Hi Tangent

Yes I think it is potentially an issue. Probably easier to discuss the various alternatives available to you on the phone. If you want to PM me I will give you my contact details so that we can discuss in more detail.

Puma

Why would this be an issue? I ask because my account advised me it was not an issue.

EF

[THEPUMA]

Why would this be an issue? I ask because my account advised me it was not an issue.

EF

Because more than 20% of the company's assets would be invested therefore potentially jeopardising the company's trading status for entrepreneurs' relief purposes.

Puma

[electronicfur]

Because more than 20% of the company's assets would be invested therefore potentially jeopardising the company's trading status for entrepreneurs' relief purposes.

Puma

My understanding is that is is quite common for trading companies to have their spare cash invested in fixed income securities, shares, etc, and that some even have a Treasury department that does this activity.

The main test is that the company exists wholly or mainly for carrying on a trade or trades on a commercial basis.

So the one issue I could see a problem in is if the contractor is out of contract or decides to take a break, but even then the fact that the trading resumes should illustrate that the company exists for carrying out a trade.

[Olly]

Righty then....
I know this one's been done to death but I'm still short of ideas.
My Ltd's sitting on a fair whack, 85K in Investec Business High 5 currently 2.23% and the rest (quite a lot) in Scottish Widows at 1.5%.
I'm no where near retirement age and don't really want to invest in a pension (unless I can be persuaded otherwise). My plan is to leave the money in the Ltd and pay dividends in the lean/retired years or if I need it before then go down the 10% winding up route.

Buuuutttt....what on earth to do with the asset now?

If I had a house I'd probably risk putting it against an offset mortgage - I don't have a house and I can't see me buying one in the next year or so.

Come on chaps I can't be the only one in this position....what to do? I can produce a nice little sticky summary of all the contributions together.
Thanks

[max]

but I do not want to draw attention to myself and get an inspection.

Sounds like you have something to hide.

[MarillionFan]

Righty then....
I know this one's been done to death but I'm still short of ideas.
My Ltd's sitting on a fair whack, 85K in Investec Business High 5 currently 2.23% and the rest (quite a lot) in Scottish Widows at 1.5%.
I'm no where near retirement age and don't really want to invest in a pension (unless I can be persuaded otherwise). My plan is to leave the money in the Ltd and pay dividends in the lean/retired years or if I need it before then go down the 10% winding up route.

Buuuutttt....what on earth to do with the asset now?

If I had a house I'd probably risk putting it against an offset mortgage - I don't have a house and I can't see me buying one in the next year or so.

Come on chaps I can't be the only one in this position....what to do? I can produce a nice little sticky summary of all the contributions together.
Thanks

Buy a commercial property and rent it out.

[Wanderer]

Sounds like you have something to hide.

Why do you presume that? Even if you have nothing to hide, an inspection can be time consuming and stressful. If you accidentally say the wrong thing then it could cost you dearly.

[Zoiderman]

Sorry to go slightly off topic, but I thought if you paid tax on profit in year 1, in year 2, you no longer pay tax on the profit from year 1, as it has already been taxed? Or am I deluded?

I have a house, and I thinking of buying my house off me, then renting it out as an income, as well as continuing to trade in IT.

Still confused as to tax on profits from one year to the next?

[Fred Bloggs]

Profits are only taxed once.