Reply to: Business Acc Cash over & above the 'slush fund'

[AnotherGuy]

Is it simple to add on a property portfolio ontop of a ltd company? If I done that though, I would have to leave the IT flat rate scheme.

Wouldn't be better to setup another company to manage the property investments? And maybe have your current LtdCo as parent?

[ItRYmyBEst]

There's always the other option, of buying an investment in your Limited company. This adds a number of complications, however, and is best discussed with your accountant or tax advisor.

I've often thought about it though, given that my warchest is earning a pathetic amount of interest each month and we could achieve >10 times return on the money if the company bought a property and rented it out.

Is it simple to add on a property portfolio ontop of a ltd company? If I done that though, I would have to leave the IT flat rate scheme.

[DoctorW]

Roger that, thanks again all.

Thanks also Cyclingprog - had never heard of the TIS legislation. Reading quite an interesting summary of it now.

Take care all

[TheCyclingProgrammer]

Wow, can't see a single thing about that set up that is worth it. Even at 19k for the car out of pocket isn't even close. And after 3 years it's worth less thank 10k!

Indeed...as jamesbrown said, don't overthink this.

If you need the money now, take the dividends and take the higher rate tax hit.

If you don't, consider investing in a pension (which will reduce CT) or just let the money build up.

You don't necessarily need to wait for ages to MVL, you could probably get away with shutting up shop and going on an extended break - if you've built up significant funds you should be able to do this without any financial worries. Just be aware of the potential (but as yet uncertain and untested) risks of TIS legislation.

[Maslins]

Whack it into a pension fund as an employer contribution.

That'd probably be my thoughts too, as it doesn't sound like you need the cash now.

That way you can invest it as you see fit (though not currently in residential property), no tax to pay now (in fact extra tax relief now), and whilst you may well have to pay tax further down the line when you withdraw it, most people would expect their other earnings to be much lower at that point.

[TheFaQQer]

Better to pay the corporation tax and get hold of it now, where I can invest it and make it work for me, rather than in 10 years or so when I take it all out in one huge chunk for a property etc.?

Whack it into a pension fund as an employer contribution.

[DoctorW]

While I admire your passion for cars & your fine entrepreneurial spirit I have to agree with Northernlad - I'm not into cars enough and they tend to be pretty bad (understatement) financial investments in almost all circumstances!

Buying either as a business or an employee is both a hell of a lot more expensive than keeping my 10 year old 3 grand diesel VW golf. Would rather retire 5 years early and support my younger siblings than have a bunch of (albeit tempting as f***) flash cars over the years.

Also - an index tracker is still risking some capital! but I certainly catch your drift - seeing a fairly useful amount of money languishing with such poor interest should pain any true entrepreneur.... Have not even heard of buying an investment in your own company before, is that really something feasible?

Thanks, D

[northernladuk]

Wow, can't see a single thing about that set up that is worth it. Even at 19k for the car out of pocket isn't even close. And after 3 years it's worth less thank 10k!

[IR35FanClub]

I forgot to mention the other one... depending on how much you have in the pile .. buy yourself an EV as a company car.

I've just ordered an BMW i3-REX due in February. Although the list price is £38,000 the cost to my personal pocket is only £19,500. As in that's the money I could have taken as post tax dividends instead of having the car. Will save me £1,500 a year in Fuel bills, and BiK Tax works out about £300 a year for the next 3 years vs £1,800 for a 120d which is the closest specced car on paper.

That £38,000 isn't the base model. Quite a few options - a 120d will come in at £32,000 if you select the same things. But you'll pay a lot more real money for it!

The i3 works out like this...

£38,000 List price
- £5,000 Gov EV Grant
- £6,600 First year allowance ... write down against corporation tax for vehicles < 75g/km emissions
- £5,940 Saving by not taking dividends at higher tax rate ( I spend the rest of my 20% divs on food and mortgages)
=£20,460

You then save that £304 per year on the BiK rate bring the total saving over 3 years of£18,452 make the car cost you

£19,548.

Man maths for ya. :-)

Of course all this assumed you wanted to buy a premium hatchback like a 120d in the first place not a VW up or an 1995 525TD.

The only downside is the i3 looks like a margarine tub, and definitely is a marmite car. I wonder if it can make toast? I currently drive a Nissan Juke so am used to people saying are you of an un-usual sexual disposition. However anywhere in the rev range it goes like it's a diesel at 4000 rpm :-) 170bhp in an electric car :-)

My advice - test drive 1st, then you'll want one! And don't look at the i8 while your in the showroom as that's the one you'll really want, but starts at £98,000!

Don't worry about the batteries bit.. the range extender means on trips over 75 miles the petrol engine kicks in to top up the batteries. Gets you 150 before you need to put in more unleaded. I've worked out I'll be doing 8,000 electric miles and year and 4,000 on petrol - assuming I'm at the same client.

[IR35FanClub]

What about investing in a new company? Just found your thread whilst searching to get an answer...

I've got about 4 ideas for companies I want to start. Might have to post a new thread though as it's quite complex.

More generally... My thinking is do I want to stick the money in an index tracker (owner by the company) and sit and watch it grow. Or have a go at being a proper entrepreneur and actually risk some capital. ;-) All the ideas I have are between £5k and £10k start up costs and are fairly hands off businesses. I suggest you read "The 4 hour work week" by Tim Ferris for inspiration.

Maybe someone else will be able to explain - but what I'm looking for at the moment is can you create a subsidiary and transfer cash from the current Ltd co as some kind on loan on the balance sheet. It must be possible - otherwise we wouldn't have companies like Virgin Galactic and Tesla Motors which are making a loss. (though Elon might be using personal cash for that not company cash).

As other have said - don't get confused with when you personally take the cash and when the company pays corporation tax on profits. This throws up another questions.. If say you made £50k profit this year but instead bought assets to do some new trading activity in the current ltd company - there is a CT Advantage in that the Asset purchase reduces your profits. Not sure if this would apply if you make a loan to a subsidiary though. As in can the loan be written off the profit. I haven't checked yet - but it may work the same as a directors loan as there's something I came across called "Close Company" legislation. As you are a director of both companies they treat it differently to a loan made to an unrelated party. Still trying to get my head around that though so not in a position to advise.

In general ... I'm not having a much success at googling how to do this. All the company start up advice is for brand new companies and anything about subsidiaries is talking about mega corps like starbucks and tax avoidance. Not much for smaller companies wanting to separate their trading activities.

Still it might get you into a different mindset than sitting on a pile of cash, you'll get a sore a$$ after a while.

[ChimpMaster]

There's always the other option, of buying an investment in your Limited company. This adds a number of complications, however, and is best discussed with your accountant or tax advisor.

I've often thought about it though, given that my warchest is earning a pathetic amount of interest each month and we could achieve >10 times return on the money if the company bought a property and rented it out.

[DoctorW]

Thanks Northernlad/Jamesbrown - some good pointers for reading up on. Will ask the acc to run a few numbers but I think Jamesbrown is right, likely not worth worrying about too much as yet.

I do understand how well the investments would have to perform to make up for the tax paid to get hold of it, but before I'd heard about MVLs (thanks on that one) I thought it was either pay the tax now or later - better to pay it now and have it invested for 15 years (I'm fairly clued up on investing strategy) rather than stagnating for 15 years THEN paying tax if you catch my drift.

Also - correct re: brushing up on understanding - few slip ups there, haha

Thanks again all!

[ChimpMaster]

Might want to brush up on the basic understanding of your accounts as well BTW.

LOL exactly what I was thinking.

It's personal taxation at that point. You've already paid (or will have accounted to pay) corporation tax at 20% on your company profit.

So, your additional personal tax burden is what you're looking for, once you have crossed the 40% threshold with your basic salary and dividends. This additional burden is normally around 25% of the dividend you choose to pay once you are in 40% territory.

As NLUK says though, you might want to research MVL, if an opportunity is likely to arise within your intended timeframe.

[jamesbrown]

By CT, you actually mean tax on dividends at 25% (net) of anything over the higher rate limit, up to the additional limit.

Personally, I wouldn't over-think this. There's no easy way to extract the money. If you need the money now, then take it. Of course, if you're planning to recover more than the tax paid upfront, you'll need a good investment strategy, although it's worth noting that personal investments benefit from the annual CGT allowance. You could put the money aside in a pension on the basis that there's a differential in your favour between paying tax later vs. now, but who knows. The other (probably preferred) option is to keep the money in the business and use an MVL in 15-20 years, assuming it's still a possibility (who knows, but perhaps unlikely). The problem with planning long-term is that it relies on a lot of guesswork, so if you need the money now, don't make that decision on the basis of forecasting tax differentials IMHO.

[northernladuk]

The way I see it, unless I have an overly-simplistic understanding, is, if I'm continuing to work for the next 15-20 years, continuing paying myself the minimum salary & dividends, the only way I'm ever going to be able to touch that additional cash is to pay the corp tax as it comes out into my personal account. Better to pay the corporation tax and get hold of it now, where I can invest it and make it work for me, rather than in 10 years or so when I take it all out in one huge chunk for a property etc.?

Am I wrong/right in thinking this? Would be grateful for any more experienced Contractors to chip in here!

Thanks a lot

D

Might want to brush up on the basic understanding of your accounts as well BTW.