Change of business, buying assets

[Zoiderman]

Please bear with me on this one. If I am right in thinking, if I carry profit over a tax year, that prfit gets taxed by CT. If I don't make a profit, there is no CT to pay. If, come the end of the tax year, I have £100k in the company, can I buy something like a gite, in the company name, and use this as a business asset, with the rental for it obviously going to the company? I would have to change the use of the company to a dual use I guess, but would this be considered ok? Now, in 3 years, could I transfer these gites into a pension fund i.e. the gites themselves become the pension, and I can backtrack mine, and my wifes, allowances for pension (£50k a year * 2), or can I just put the rental income into the pensions?

[JamJarST]

Please bear with me on this one. If I am right in thinking, if I carry profit over a tax year, that prfit gets taxed by CT. If I don't make a profit, there is no CT to pay. If, come the end of the tax year, I have £100k in the company, can I buy something like a gite, in the company name, and use this as a business asset, with the rental for it obviously going to the company? I would have to change the use of the company to a dual use I guess, but would this be considered ok? Now, in 3 years, could I transfer these gites into a pension fund i.e. the gites themselves become the pension, and I can backtrack mine, and my wifes, allowances for pension (£50k a year * 2), or can I just put the rental income into the pensions?

Profit always gets taxed in the year you make it whether you carry cash over or not. If you make a £100k this year you will have to pay £20k tax and have £80k in the bank. If you make nothing in year 2 you carry over £80k with not tax liability (ignore interest in my simple example). A gite would not reduce your profit, it would be an asset capitalised, you could depreciate it but no way could you write off the whole value in year 1.

[Zoiderman]

Profit always gets taxed in the year you make it whether you carry cash over or not. If you make a £100k this year you will have to pay £20k tax and have £80k in the bank. If you make nothing in year 2 you carry over £80k with not tax liability (ignore interest in my simple example). A gite would not reduce your profit, it would be an asset capitalised, you could depreciate it but no way could you write off the whole value in year 1.

OK, not too bright in the accountancy department, but would you not be able to spend say 80k of the 100k on a gite, and that only leaves 20k profit to be taxed on? As now there's an asset you have bought?

[contractoralan]

If you make a £100k this year you will have to pay £20k tax and have £80k in the bank. If you make nothing in year 2 you carry over £80k with not tax liability (ignore interest in my simple example).

In year 2, your operating expenses(accountant fee, insurance etc) will lead to a loss that can be offset against previous year's profit and get a refund of tax paid or you can carry the loss forward to offset in the next years.

HM Revenue & Customs: Making a loss and Corporation Tax

[JamJarST]

OK, not too bright in the accountancy department, but would you not be able to spend say 80k of the 100k on a gite, and that only leaves 20k profit to be taxed on? As now there's an asset you have bought?

No you would still have 100k profit. An asset is capitalised and depreciated over its useful life, the depreciation does affect profit but the allowable rate of depreciation on a building would be quite low (not sure how low). As a businessman, you really should look into learning the basics of finance and the likes of balance sheets.

I am also not sure what the impact of running to different businesses in the same company would be, i.e. IT services and a holiday rental business.

[JamJarST]

In year 2, your operating expenses(accountant fee, insurance etc) will lead to a loss that can be offset against previous year's profit and get a refund of tax paid or you can carry the loss forward to offset in the next years.

HM Revenue & Customs: Making a loss and Corporation Tax

Yeah I know that but I wanted to keep the example simple which is why I ignore that and the effect of interest earned. Nearely trying to illustrate to the OP that cash in the bank is NOT profit.

[Zoiderman]

No you would still have 100k profit. An asset is capitalised and depreciated over its useful life, the depreciation does affect profit but the allowable rate of depreciation on a building would be quite low (not sure how low). As a businessman, you really should look into learning the basics of finance and the likes of balance sheets.

I am also not sure what the impact of running to different businesses in the same company would be, i.e. IT services and a holiday rental business.

well I guess the issue is that I am not a businessman, I am an it contractor who happens to use a ltd company as a vehicle. I guess I need to research this a little more.

Thanks for the advice

[JamJarST]

well I guess the issue is that I am not a businessman, I am an it contractor who happens to use a ltd company as a vehicle. I guess I need to research this a little more.

Thanks for the advice

You are a businessman now and this is a great opportunity for you to expand your horizons. The fact that you are already looking at investment opportunities and diversification means you aren't "just" an IT contractor.

[ChimpMaster]

You are a businessman now and this is a great opportunity for you to expand your horizons. The fact that you are already looking at investment opportunities and diversification means you aren't "just" an IT contractor.

hear hear.

A lot of contractors have been wondering how to invest/spend surplus cash in the company. Property can be bought in the company and rental attributed to profits, but the purchase price is not a cost that can be taken off the profit figure.

AFAIK the property then remains a company asset and accounted for as such. You can leave it in there forever and use the rental income to pay yourself dividends in your old age (or sooner...).

One thing I'm not sure of is whether you can transfer the property to your pension from your Ltd.

[redgiant]

You are a businessman now and this is a great opportunity for you to expand your horizons. The fact that you are already looking at investment opportunities and diversification means you aren't "just" an IT contractor.

I agree with this.

One of the main reasons I became a contractor was to have opportunity to run my own business and not just have a vehicle for contracting.

Ultimately I want to be in a position where I have a product that I can sell rather than just providing a service so I am using personal time (+ bench time) and also some money from the business and investing in product development. Another area I am looking to put some of the company money towards is commodities (gold, platinum etc.) but I’m waiting until the war chest has got to a reasonable size before going into that.