Where does your warchest reside?

[northernladuk]

Interesting discussion about where people keep their warchests in another thread so thought it might be interesting to see what the masses say.

My warchest is in the company as I withdraw up to the tax threshold which becomes my money and my savings. The warchest is a different beast in my eyes and grows naturally in the ltd because I can't withdraw it all efficiently anyway. Obviously things will have to change as it gets too big and if I shut the company but will deal with that then.

What does everyone else do?

[smatty]

Much the same, it's sat in business savings earning a pathetic amount of interest, ready to fund any downtime between contracts.

[eek]

sat in its own mortgage offset account (in my name with tax paid on it).

[No2politics]

Where does your warchest reside?

Same as you. Sat in a business account with pretty much zero percent interest, to fund the down time. The plan is to start a series of fixed term bonds once this years accounts are done.
Then once my other half quits her job to start a family will start income splitting that baby.

One thing to consider, the government will only cover you up to a certain level if a bank goes bust. So I think it's extremely important to have accounts/bonds with multiple institutions.

[cojak]

Where does your warchest reside?

Me too, there's probably a better way of doing it but I'll be able to pay my salary for a few months should I need it. :-)

[Wanderer]

A friend of mine has an interesting take on this which he explained to me in great detail over a few beers...

He uses an offset mortgage and says the company account typically holds a few grand at most.

This is done using:

• £7488 salary so avoiding PAYE/NI payments and all the admin that goes with it
• Dividends declared and paid out for every invoice as it's paid, up to the higher rate limit
• A director's loan to clear out any money remaining in the company account leaving a few grand "float"
• Loan is partially/fully repaid if the company hits cashflow problems

I suggested to him that this was sailing pretty close to the wind. His defence is:

• Every penny of the company's money is properly accounted for in the company accounts (including the directors loan)
• Dividend vouchers and meeting minutes are properly completed for every dividend
• A shareholder meeting to approve the director's loan has been held and minuted as required under s197 CA 2006 because the loan is over £10,000 (s207 CA 2006)
• The director's loans will be repaid with statutory interest before the end of the company year to avoid a BIK charge.
• He has a substantial facility on his flexible mortgage and he's not the type to blow all the money on beer and hookers anyway

Another quirk of this is that if the director dies then the loan will be written off (s190 ITEPA 2003). This will of course bankrupt the company leaving HMRC as a creditor but he reckons HMRC can't do anything about it and the company will cease trading without him to run it anyway.


I don't know if all that is strictly legal and I wouldn't advise doing it but his explanation of the method sounds plausible. I didn't get as far as figuring out how he dealt with the question of "bed and breakfasting" of loans either.

[Pondlife]

Divs up to threshold for the minor shareholder plus a bit extra for me as the larger shareholder. Happy to take the hit when it comes to SA as we're spending a lot on the new-ish house at the mo.
Max out ISA allowance but don't look, don't touch. Happy to know it's there for later.

The rest stays in MyCo as warchest but it's getting to the point where I need to think about getting a chunk better utilised. I reckon there's a good x years worth of happy living in there at the mo that's not doing much.

Not really in a position to phoenix as current contract has a while to go and so it's hard to argue that closing down is for commercial reasons.


Wanderer's post is great but the overnight repay/withdraw is a bit close to the wind for me. YMMV.

So.. how best to apply the Co funds?

[kingcook]

What does everyone else do?

A bit of both. I take the max amount out per year via £7488 salary + the rest (upto £42K) out as divis.

I have quite a bit left out of that £42K so that gets stored in a cash ISA + savings.

A bit stays in the ltd co bank account.

[northernladuk]

Taking a loan out, repaying it and then taking it out again is a 'bed and breakfast loan' as mentioned and as the reality to him is that it is permanently in his account and that is the reason for the loan he will get taxed on it as such... He is manipulating the system to avoid tax so they would ignore his efforts to put it back in the company and out and treat it as a continuation.

It won't be hard to spot and his reasons for doing it also indicate a long term loan. I wouldn't be going anywhere near that idea for more than the first 18 months (year + 9 months) personally.

[northernladuk]

Give him these to read....

EM8565 - Close Companies: CTA10/Section 455 (Loans to Participators): Bed and Breakfasting

CTM61615 - Close companies: loans to participators: repayment of - bed and breakfasting

If that doesn't phase him then he is a wide boy that doesn't really care and any advice he gives is to be taken with caution or ignored IMO.