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Funding plan B

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    Funding plan B

    I'm entering into a Plan B with another party and the nature of the business is such that it will need regular funding from us for at least a year but probably 3. I will be a 25% owner and in an ideal world I'd fund it out of my own money, however, I generally go over the tax thresholds already in dividends from my own contractor ltd co so really don't want to pay even more tax.

    On the other side though, we are beginning to work through the numbers and can see this will either be a big flop or a big success, there isn't really a middle ground. If the latter does it just mean the inevitable sale of the venture in 5 years will return profit to my Ltd and I would just draw it out over time in the most tax efficient way possible?

    In what way should the business fund the Plan B if I go that route? It's going to be around £1000 per month for the next 3 years. Is that a series of business loans, in which case I'll need to charge Plan B an interest rate (I can't manage that much up front so it needs to be monthly). Should it be a series of share purchases in Plan B? We don't particularly see the Plan B bank account having enough cash to to repay the loans at year 3 as all profit will need to be re-invested back into the business to fit the model we've come up with.

    Any thoughts on the best way to approach? I haven't asked my accountants yet but they generally seem to struggle with all but the simplest of contractor questions and are amazingly risk averse. I've decided I can afford this venture (with some lifestyle changes), just want to do it most tax efficiently,

    Cheers, Andy

    #2
    Originally posted by London75 View Post
    I'm entering into a Plan B with another party and the nature of the business is such that it will need regular funding from us for at least a year but probably 3. I will be a 25% owner and in an ideal world I'd fund it out of my own money, however, I generally go over the tax thresholds already in dividends from my own contractor ltd co so really don't want to pay even more tax.

    On the other side though, we are beginning to work through the numbers and can see this will either be a big flop or a big success, there isn't really a middle ground. If the latter does it just mean the inevitable sale of the venture in 5 years will return profit to my Ltd and I would just draw it out over time in the most tax efficient way possible?

    In what way should the business fund the Plan B if I go that route? It's going to be around £1000 per month for the next 3 years. Is that a series of business loans, in which case I'll need to charge Plan B an interest rate (I can't manage that much up front so it needs to be monthly). Should it be a series of share purchases in Plan B? We don't particularly see the Plan B bank account having enough cash to to repay the loans at year 3 as all profit will need to be re-invested back into the business to fit the model we've come up with.

    Any thoughts on the best way to approach? I haven't asked my accountants yet but they generally seem to struggle with all but the simplest of contractor questions and are amazingly risk averse. I've decided I can afford this venture (with some lifestyle changes), just want to do it most tax efficiently,

    Cheers, Andy
    Hi Andy

    From the sounds of it you probably want to keep the ownership of plan B personally so that you could benefit from ER upon sale, however, there are some pros to owning it through current LTD as any sale could be shipped to that company tax free in some circumstances.

    The funding would most likely come from current LTD as business loans, ideally on commercial terms with interest being charged.

    This is just a quick overview really and does need a bit of in depth work doing on it to ensure things are setup as efficiently as possible to cover both scenarios (big profit on sale or loss after 3 years).

    Drop me a PM and I may be able to help a little further.

    Cheers

    Martin
    Contratax Ltd

    Comment


      #3
      Haven't read your post, but has Ben Drew got a new album out?
      …Maybe we ain’t that young anymore

      Comment


        #4
        Originally posted by ContrataxLtd View Post
        Hi Andy

        From the sounds of it you probably want to keep the ownership of plan B personally so that you could benefit from ER upon sale, however, there are some pros to owning it through current LTD as any sale could be shipped to that company tax free in some circumstances.

        The funding would most likely come from current LTD as business loans, ideally on commercial terms with interest being charged.

        This is just a quick overview really and does need a bit of in depth work doing on it to ensure things are setup as efficiently as possible to cover both scenarios (big profit on sale or loss after 3 years).

        Drop me a PM and I may be able to help a little further.

        Cheers

        Martin
        Contratax Ltd
        Thanks, I may take you up on that, will do some more reading first though. I presume a business loan out would be pre-corp tax from my ltd? The only other thing then would be assuring that our return from the Plan B is proportional to the funds put into it plus something for the work (he has more cash than I have hence my 25%)

        Comment


          #5
          Originally posted by London75 View Post
          Thanks, I may take you up on that, will do some more reading first though. I presume a business loan out would be pre-corp tax from my ltd? The only other thing then would be assuring that our return from the Plan B is proportional to the funds put into it plus something for the work (he has more cash than I have hence my 25%)
          Initially the loans probably wouldn't have an affect on your corporation tax (current LTD) as they will simply be a balance sheet item. if the loan was written off in the future that is when there may be a corporation tax implication depending on the exact setup and if the two companies are 'connected' for in respect of 'non trade loan relationship' rules.

          Sorting out the returns is a separate discussion which again needs looking at, maybe you want A/B shares (runs for cover), preference shares, growth shares or just your bog standard ordinary shares etc.

          As I say, there is actually quite a bit to think about with this......

          Martin
          Contratax Ltd

          Comment

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