Reply to: Ltd Company Investment Funds

[chavvy]

Firstly, thank you for taking the time to provide some insight into this - I am sure there are others with similar questions.

The 20% tests when it comes to trading vs investment are still what's relevant to the best of my knowledge.

There will always be varying opinions, but I think it's generally agreed that having investments inside your contracting company is a bad idea.

It seems to be though that it is not such a bad options if:

a) you are maxxed out on your SIPP already.
b) you don't plan on exercising a MVL
c) you plan to keep it in retirement.

People seem to hate paying personal tax so often seem keen going for the former. My issue is generally speaking all that's typically doing is deferring personal tax.

Any extra cash I take out will be hit at at least 32.5% dividend tax (or 40% if taken as salary).

The downside that you point out is that at somepoint you will be taxed on it, but if treating it as a second pension and using the salary dividend structure it would potentially save a huge amount of money, especially when considering that taking 1000 out now would leave me with 675 (32.5% tax) to invest, leaving it in the company would leave me with 1000 to invest.

[contractorZ]

Worth remembering the earliest age changes from 55 to 57 in 2028 and then remains at 10 years below the state retirement age

[Maslins]

The 20% tests when it comes to trading vs investment are still what's relevant to the best of my knowledge.

There will always be varying opinions, but I think it's generally agreed that having investments inside your contracting company is a bad idea. Therefore your main options are:
- have a separate company for the investments,
- accept the personal tax hit taking more money out now, and invest personally.

People seem to hate paying personal tax so often seem keen going for the former. My issue is generally speaking all that's typically doing is deferring personal tax. Ie your investments will be inside a Ltd Co, and at some point you'll want to spend that money on personal things, hence you'll need to suffer personal tax. Yes you may go down the route of "I'm earning very well now, so will withdraw later when I'm (semi) retired so my earnings are lower, and hence tax will be lower". That's fine to a point, but I feel really that's what your SIPP is for. Also you'd be committing to two loads of accounting fees indefinitely, and be at risk of future changes to tax rules on investment companies.

Therefore my personal view would be basically what Fred Bloggs said. Don't bother investing company money, go big in your SIPP, any excess take out and invest personally. If you're looking to continue to contract for maybe 10 years, I'd forget about an MVL as a possible option, the chances of it still being viable then are slim, so daft to plan based on that now IMHO.

[Fred Bloggs]

Thanks,

I am in the process of setting up a SIPP. I don't want to put everything into a SIPP as I might/will want access to it. I was thinking perhaps a 50/50 between a SIPP (tax avoidance) and Ltd Co. trading account (good return on balance) - or some ratio, whatever is best.

Fine, it depends on age. The closer you are to 55 the more compelling a SIPP investment gets. So, it isn't for everyone.

[chavvy]

OP, if you aren't already, I'd be putting GBP 40k into a SIPP each year, while you still can. It is very cost effective. Also, depending on your circumstances**, you may be able to carry forward a GBP 40k allowance from the previous three years too. I wouldn't be tempted to accrue large investments inside the MyCo if I were you at least until you have maxxed out SIPPs and ISAs. HTH.

** If you have a pension scheme in place but have made no contributions to it the previous three years.

Thanks,

I am in the process of setting up a SIPP. I don't want to put everything into a SIPP as I might/will want access to it. I was thinking perhaps a 50/50 between a SIPP (tax avoidance) and Ltd Co. trading account (good return on balance) - or some ratio, whatever is best.

[chavvy]

[QUOTE=Zylon;2490908]I'm also interested in understanding this area better, and personally it's not the type of question I'd expect an accountant to advise on, nor which I think should need expensive professional advice as a start-point - so perfectly legit question for a forum IMO.

That said, the very first Google result for "investing as a limited company" contains a concrete answer and example for your question #1, so I suspect you might find other answers easily too.

Yes, I linked to that earlier in the thread, problem is it is 5 years out of date. I would like to know if this position is still in anyway accurate.

[Fred Bloggs]

OP, if you aren't already, I'd be putting GBP 40k into a SIPP each year, while you still can. It is very cost effective. Also, depending on your circumstances**, you may be able to carry forward a GBP 40k allowance from the previous three years too. I wouldn't be tempted to accrue large investments inside the MyCo if I were you at least until you have maxxed out SIPPs and ISAs. HTH.

** If you have a pension scheme in place but have made no contributions to it the previous three years.

[Zylon]

But the guy that wrote that is a contractor accountant?

I'd also check the date of the article as ER rules have changed recently.

Fair point, I meant it's not question I'd expect a typical contractor accountant to know in depth.

[northernladuk]

[QUOTE=Zylon;2490908]I'm also interested in understanding this area better, and personally it's not the type of question I'd expect an accountant to advise on, nor which I think should need expensive professional advice as a start-point - so perfectly legit question for a forum IMO.

That said, the very first Google result for "investing as a limited company" contains a concrete answer and example for your question #1, so I suspect you might find other answers easily too.

But the guy that wrote that is a contractor accountant?

I'd also check the date of the article as ER rules have changed recently.

[Zylon]

I'm also interested in understanding this area better, and personally it's not the type of question I'd expect an accountant to advise on, nor which I think should need expensive professional advice as a start-point - so perfectly legit question for a forum IMO.

That said, the very first Google result for "investing as a limited company" contains a concrete answer and example for your question #1, so I suspect you might find other answers easily too.

[ChimpMaster]

You could set up a separate company for investments and then loan the funds from your IT Ltd. Obviously read up on the rules and regs before you do this.

A slight alternative is that you could set up a holding company which owns your IT company and the Investment company.

I could write essays about the benefits and impacts of each but I really don't have time. I'm sure you'll read up and speak to the right experts to learn more.

[northernladuk]

Give Chris Maslin a ring. He's an accountant that posts on here but also has a hand in MVL Online so will know about the accounting and liquidation sides. He should have some pearls of wisdom for you.

[chavvy]

The rules about gaining a tax advantage when liquidating have changed. You can't restart in the same line of work (or some odd wording like that) for two years. Worth reading up on that to get your thinking right if you are trying to put together a long term plan.

I thought I responded to this. I'll try again.

Thats interesting; I think that that means that the next time I liquidate it really will be the end, and this might be in 10 years time. So my questions still stands, but with added caveat that now there may be a large amount of money in investments funds.

[chavvy]

You would have to consider carefully the implications of being an investment company when you come to close down (assuming that the ER rules have not changed between now and then, which could be a big assumption).

Well that was one of my questions really.

Taken from the link:

"Compare this to an Section 1030A claim without ER, the rate increases to 18%. A claim for ER could not be made if there was ‘significant’ investment activity. However, what is significant is not defined by statute, although HMRC say they will look at whether a company’s non-trading activities amount to more than 20% of income, assets, expenses or time taken by employees. "

I would like to know if this is now completely irrelevant but if not, try and put some illustrations into it.

[northernladuk]

The rules about gaining a tax advantage when liquidating have changed. You can't restart in the same line of work (or some odd wording like that) for two years. Worth reading up on that to get your thinking right if you are trying to put together a long term plan.